Merrill Lynch Chairman and CEO David Komansky and President Stanley O’Neal made a firm-wide interoffice broadcast yesterday to brokers and other employees, telling them that the firm has been "tarnished" by the New York State Attorney General’s conflict-of-interest investigation.
During a 30-minute live broadcast that brokers tuned in to during the afternoon, Komansky said, "Our reputation has been tarnished and we have to repair the damage," according to a Merrill broker who watched the broadcast. "He said that the firm is going to take whatever steps are necessary in order to repair the damage," the rep says.
O’Neal and Komansky told producers that it’s never been a more critical time—and that there may never be a more critical time—to strengthen client relationships, Merrill producers say. Komansky and O’Neal also talked about "reinforcing firewalls" between investment banking and research during the Wednesday speech in an effort to avoid "even the appearance" of any conflict of interest. Yet, one Merrill rep says that Komansky actually defended the firm’s analysts at one point during his speech, saying the firm relies on them to identify investment-banking opportunities. The Merrill executives did not go into detail about any new initiatives to "reinforce" the firewalls.
Komansky also said that the firm is working to settle charges by the attorney general in an effort to eliminate the possibility of an indictment, which would damage Merrill’s stock value. Merrill and New York State Attorney General Eliot Spitzer are said to be close to a settlement to bring the 10-month investigation to an end. Even so, Spitzer is said to be widening the investigation to include other firms, such as Credit Suisse First Boston, Goldman Sachs, Morgan Stanley, Salomon Smith Barney and UBS Warburg. At heart is the accusation: Were analysts merely tools of the investment banking department, shilling to win deals?
One broker took away a distinct impression from the video, saying, "It’s obvious that Komansky and O’Neal want this thing to go away—and go away fast."
Another Merrill rep says, "The firm is trying to save face, to do anything to make us feel better and calm clients down so they won’t lose their butts."