Merrill Lynch suffers triple blow
By Joshua Chaffin in New York and Tony Tassell in London
Published: May 17 2002 18:36 | Last Updated: May 17 2002 18:45
Merrill Lynch suffered a triple blow on Friday as a ratings agency cut its credit rating, a UK pension fund fired its asset management division and it abandoned a highly-touted joint venture with HSBC bank to manage money for affluent clients.
The setbacks come as the largest US brokerage is already reeling from a series of investigations by the New York attorney general and the Securities and Exchange Commission into the conduct of its internet analysts during the height of the bull market.
Fitch, the ratings agency, dropped Merrill's long-term credit rating one notch on friday to 'AA-', and warned that its outlook on the company remained negative.
Fitch noted that Merrill was suffering from the downturn in capital markets and shrinking margins as commerical banks cut into its investment banking turf. It said European operations had failed to pick up the slack.
The ratings agency also pointed to the damaging investigations in offering its grim assessment.
"Regardless of the outcome, the press on their firm has been negative enough that it could impact their retail business," said Eileen Fahey, Fitch's financial services analyst. "Certainly there will be knock-on lawsuits and civil litigation."
The downgrade was expected to intensify pressure on Merrill to reach a settlement with Eliot Spitzer, the New York attorney general, who has accused its internet analysts of issuing flattering reports on companies to help the firm win more investment banking business.
The two sides were continuing discussions on Friday on an agreement that would include a $50m to $100m fine and some separation of Merrill's research analysts from its investment bankers.
Meanwhile, Merrill Lynch Investment Managers could face legal action from Co-operative Group after it dropped it as manager of £500m ($729m) of pension fund assets.
Co-op, the insurance and banking group, said it had decided to end a 30-year relationship with MLIM and consider legal action following "disatisfaction" over its investment performance.
MLIM is still shaken from last year's landmark legal dispute with Unilever's pension fund, which sued the manager over poor investment performance.
That dispute was settled in December after MLIM made a £70m compensation payout to the Unilever pension fund in a humiliating climbdown after a two-year battle. Since then, it has faced continued speculation of legal action from other clients.
Merrill said it was pulling out of the joint venture with HSBC because of "changed market conditions." The online platform was announced with great fanfare in April 2000 as a way for Merrill to combine its fund management and research expertise with HSBC's mass affluent clients. The partners were to invest $1bn over five years in the scheme.
Merrill said the change would not be material to earnings, and that its name and research would remain on the site for two-and-a-half years.
"They are really under the gun," said Scott MacDonald of Aladdin Capital Management, a Connecticut hedge fund. "Their main lines of business are all down and the SEC is sniffing around." |
