Good Time Charlie : Part 5

What Goes Up: The Uncensored History of Modern Wall Street as Told by the Bankers, Brokers, CEOs, and Scoundrels Who Made It Happen
by Eric J. Weiner

(Page 5 of 5)

JOE NOCERA:

The one place where Merrill Lynch missed out in reaching Main Street was mutual funds. Charlie Merrill hated mutual funds. In the 1930s there was a scandal where college kids went door-to-door selling people these things called investment trusts that eventually had all kinds of problems. Some of them were Ponzi schemes and others simply didn't deliver what they promised. These investment trusts really were the forerunners of mutual funds, and as mutual funds developed Merrill linked them to all the wrongdoing that had gone on in the twenties. He truly thought they were bad for his clients. So even as mutual funds became popular again in the 1950s - when increasing numbers of ordinary people started turning to mutual funds as the way they wanted to touch the stock market - Charlie Merrill harbored this enormous prejudice against them. He wouldn't have anything to do with them.

WILLIAM SCHREYER:

Charlie would just pound his fist on the desk and say, "Mutual funds - they're evil!"

WINTHROP SMITH JR.:

The reason was, Charlie Merrill didn't believe that mutual funds were structured in a way that was in the best interests of the individual investor. He thought a portfolio of well-chosen stocks and bonds was the most efficient way to earn a return on your money. Our entire top-management team felt that way and there was no chance of persuading them otherwise, though a few people, particularly Don Regan, tried.

DONALD REGAN:

When we got into the subject of teaching women about finance I could see that mutual funds were made for that type of client. I used to argue about this all the time with my boss, Bob Magowan, though I never had the nerve to talk about this stuff with Merrill. Merrill was a merchandiser. He believed in packaging things. He didn't believe in loose coffee, he believed in a package of the stuff. What's the difference between a package of stocks and a package of coffee or walnuts? It was stupid, but they wouldn't go for it.

Finally, in 1949, I spent months working over a paper on why Merrill Lynch should be in mutual funds. It was pretty long when I started, but I managed to cut it down to a couple of pages. I remember Merrill was staying out in Southampton and Win Smith was visiting over the weekend. Bob Magowan also had a house out there not too far from Merrill's. He was going out that weekend, so I gave him the paper and said, "Put this in your briefcase. When you see Charlie and Win you'll be talking about the business, going over where we're headed. I think the 1950s is the time for us to get into the mutual fund business and this paper explains why. Please talk about it with them."

He said, "You'll never get it past them." And I said, "Please show them this paper and see what they say."

So Monday rolled around and I heard Magowan's heels clicking down the hall. He never wore rubber heels, always leather heels, and he clicked down the hallway into his office. When I went in to see him I remember Bob was all cheery, telling me about his tennis game. I could've cared less. Finally I said, "What happened?" He didn't know what I was talking about. So I said, "What happened with the mutual funds paper?"

"Oh that. I spoke to Win about it and Win talked to Charlie. Charlie didn't like it, so Win didn't like it. I figured I'd go along with them."

I said, "Goddamn! Shot down by the father, the son, and the Holy Ghost." That was it. Merrill Lynch was not going to get involved with mutual funds as long as any of them were alive and in charge. The ban lasted until 1968, when I became president.

EDWIN PERKINS:

Charlie Merrill died on October 6, 1956. He basically had been having heart trouble for a long time. He did agree to some experimental treatment where he had to drink this radioactive material, and it seemed to work miracles for him for a while, and he was able to keep up his pretty active social schedule. But at the end there, he really started to give out. He got weaker and weaker, and finally his body just succumbed to the disease.

The company he left was in great shape, though. It was still hitting high points. Volumes were picking up, prices were going up, and Merrill was in a commanding position to take advantage of it. They were way ahead of the pack on the brokerage side, and they were starting to make inroads on the investment-banking side. You'd have to say that the firm had fulfilled all of Charlie Merrill's dreams and hopes when he came back to the business in 1940.

By the time Charlie Merrill died, the firm he'd resurrected was one of the most powerful forces on Wall Street in terms of distributing securities - nobody did that better than Merrill Lynch. Merrill left a firm that was Wall Street's only truly national brokerage house, with nearly 6,000 employees in more than 120 offices around the country. Its $83.5 million in revenues made it the largest firm in the securities industry. At the time, Merrill Lynch was responsible for 20 percent of the volume in small trades of fewer than 100 shares on the New York Stock Exchange and 12 percent of the volume in larger trades. None of its competitors was even close. And with Win Smith in charge, Merrill could rest assured that his firm would continue in his image for some time. In fact, although Wall Street in the twenty-first century is a vastly more complicated place than it was when Charlie Merrill agreed to rejoin the business in 1940, there are still remnants of what he was trying to create today in just about every other major player in financial services.

Still, Merrill's missionary instinct was hardly bringing people to the stock market in droves. In 1953, more than a decade after he returned to Wall Street, there were only 6.5 million individual investors in the United States, accounting for just 4 percent of the population. By 1959, the number of individual investors would nearly double to 12.5 million, which shows that things were picking up - but not nearly as fast as they would later on.

Copyright © 2005 by Eric J. Weiner

About the Author

Eric J. Weiner is a financial journalist and former Wall Street reporter for the Dow Jones News Service. His stories have appeared in countless publications, from the Wall Street Journal to the Village Voice. He lives in Brooklyn, NY, with his wife, Paige.