More News on Merrill Launch!
Wall Street Is Rocked
By Merrill's Online Plans
Big Task Awaits Securities Firm
As It Pushes Into Online World
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
It's official: Merrill Lynch & Co. has unveiled a radical new
Internet-brokerage strategy, one of the boldest moves in its 85-year
history.
The nation's largest full-service securities firm, confirming a report in The
Wall Street Journal, will offer online trading for as little as $29.95 a trade.
Currently, Merrill customers pay commissions of as much as several
hundred dollars a transaction.
"It really got to the point where we all felt the viability of that segment of
the market was indisputable," said David Komansky, Merrill's chairman.
Now Merrill has to make the plan work. To
do this, the firm must essentially build a
large-scale, discount-trading operation. That
won't be easy: Within months, Merrill has to
streamline and add key features to its
computer systems, hire hundreds of technical
staff and expand its existing customer-service
centers. And computer glitches have
repeatedly bedeviled some of Merrill's most
sophisticated online-trading rivals.
Moreover, by announcing the ambitious plan
six months before the launch date -- Dec. 1
for the discount Internet account, which
features Web and telephone trading for the
cut-rate fees -- Merrill has tipped its hand and
given competitors the chance to catch up.
Other traditional brokers could race to match
Merrill's offering, analysts say, and companies
that already have a big presence on the Web could add services to snare
new investors before Merrill can appeal to them.
For now, however, the pressing question is: Can Merrill meet its target
date?
"Their track record of hitting deadlines isn't exactly the best when it comes
to offering online trades," says Bill Burnham, who follows electronic
commerce for Credit Suisse First Boston Corp. In the past two years,
Merrill delayed the launch of its very limited Web-trading system at least
three times.
Still, Merrill had little choice but to act now. That's because each day it
waited would be another in which assets could migrate to online-trading
rivals. Julio Gomez, who runs the Gomez Advisors Internet consulting firm
in Concord, Mass., said: "This is their way of telling their customers to
hang in there."
So Merrill's technology department, under the direction of Senior Vice
President Howard Sorgen, will now scramble to put the new systems in
place. Currently, only about 1% of Merrill's more than five million
customers are eligible to trade online. But the firm has to be ready for a big
increase by July 12, when thousands of customers are expected to switch
to a new fee-based account that offers unlimited online and offline trading.
That account is separate from the discounted, $29.95 option.
All traditional Wall Street firms have recently struggled to overhaul their
older computer systems. The fact is, they aren't designed to pull data from
different parts of the firm and present them to customers over a Web site,
notes Simon Moss, the head of the International Business Machines Corp.
unit that provides consulting and other services to financial firms.
But in the past year or two, Merrill has worked to streamline its systems to
link different departments. These units previously worked on totally
separate systems, says Merrill's Mr. Sorgen. That has allowed the firm to
offer limited trading, which is integrated with a Web site stocked with
features such as stock quotes and research reports. More than 450,000
Merrill customers now access the site (www.merrilllynch.com).
But Merrill has to develop systems to let customers open accounts online
without a broker and get account updates immediately after they trade --
something not offered now. The firm also expects to hire about 600 to 800
technical staff in the next 18 months. Still, Merrill may wind up hiring an
outside firm to actually "host," or run the front end, of its discount-trading
Web site, Mr. Sorgen adds.
Merrill already has two big "data centers" housing key computer databases
in Manhattan and Staten Island, N.Y., but may expand its service centers
in Denver and Somerset, N.J., to house new personnel for its discount
service, Mr. Sorgen says. For more than a year, Merrill has been offering
full-price trading services over the phone with brokers housed at the
Somerset facility, which is now servicing about 100,000 customers, Merrill
officials say. The firm says it will be ready by Dec. 1. "There's no going
back," Mr. Sorgen says.
The $825 million rollout of the firm's new broker "workstation" in the past
three years also encountered problems. Merrill had to switch, halfway
through, to an Internet-based model from an intranet one. Now, however,
all the firm's 14,800 brokers have access to the new system, officials say.
"We have some issues," concedes Maddy Weinstein, a senior vice
president in Merrill's individual-investor group. "There's some more work
to be done" on the new Internet-trading platform.
In October, Merrill also went outside the company to hire John A.
McKinley, formerly with General Electric Co.'s GE Capital Corp., as its
chief technology officer. Merrill's internal preparations in the last year, plus
its acquisition of the online-brokerage-technology arm of D.E. Shaw &
Co. in February, mean "we certainly could be in the marketplace very
soon with the offering," Ms. Weinstein said.
For Merrill, the issue now is less what it is doing than how well it does it.
"Execution is everything," says Richard Strauss, an analyst with Goldman
Sachs Group Inc. "It's going to be a long time before anyone can just snap
their fingers and say, 'Boom, the execution is there.' There's a learning
curve here."
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