Merrill's stake in LTCM
Merrill Lynch execs invested $22M in
hedge fund, helped orchestrate bailout
September 29, 1998: 7:32 a.m. ET
H NEW YORK (CNNfn) - Executives at Merrill
Lynch, one of several investment banks that
helped orchestrate a $3.6 billion bailout package
for cash-strapped Long-Term Capital
Management, apparently have some personal
interest at stake in the hedge fund's future.
According to the Wall Street Journal, Merrill
Lynch executives have a total of $22 million of
their own money invested in LTCM.
Merrill Lynch said the 123 executives invested
in the fund are involved in a
deferred-compensation plan, in which senior
Merrill officials can participate in four hedge
funds, including LTCM, the Journal reported
Tuesday.
Merrill also revealed that its Chairman, David
Komansky, invested $800,000 in the plan alone
-- double the $400,000 originally disclosed.
Merrill Lynch, the nation's largest brokerage
firm, had previously acknowledged its executives
were investors in LTCM. But it had not disclosed
the amount.
The company told the Journal its executives'
ownership stake in LTCM, particularly
Komansky's, does not represent a conflict of
interest. Komansky owns a much larger stake in
Merrill Lynch, about $100 million, according to
the proxy.
"Obviously his interests are aligned with the
shareholders," a Merrill official told the Journal.
"Any suggestion that he would make a decision
based on a much smaller interest is ridiculous."
The official told the Journal: "Any suggestion
that employees having money in a
deferred-compensation plan would lead to a
corporate decision on a matter of this magnitude
is ludicrous."
Shares of Merrill Lynch (MER) were down
1-9/16 Monday at 50-15/16 on the New York
Stock Exchange.
Long-Term Capital Management, a renowned
hedge fund, received a $3.5-billion bailout last
week from a consortium of major commercial and
investment banks - including Goldman Sachs,
Merrill Lynch, Morgan Stanley Dean Witter,
Travelers Group and UBS Securities.
The firms agreed to provide the equity
infusion, which raises the fund's net asset value to
more than $4 billion, to save LTCM from
collapse.
The hedge fund has been battered since the
end of the summer through its arbitrage-trading.
Analyst Vince Farrell, chief investment officer
of Spears, Benzak, Salomon and Farrell, said the
big banks were wise to step in when they did.
"I think they did exactly the right thing," he
said. "They took shareholder money, not public
money, and they said: 'If we can allow an orderly
liquidation of this it's probably very good for the
markets.' If you don't have an orderly liquidation
of something that big, you will tank the markets."
Convergence Asset Management, a bond
arbitrage fund headed by former Salomon
Brothers superstar Andrew Fisher, warned
investors Friday that the value of the fund is down
15 percent to 20 percent for the month and 30
percent for the year, the Financial Times of
London reported.
Farrell said Convergence will likely not be the
last hedge fund to report losses.
"I'm sure we'll see more of them," Farrell said,
adding he hopes that LTCM is the largest of the
bunch.
Vince Farrell, of Spears
Benzak, Salomon and
Farrell, says the LTCM
bailout may have
prevented a market
collapse. |
