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100-474: Merrill Lynch, Pierce, Fenner & Smith Incorporated , doing business as Merrill , and previously branded Merrill Lynch , is an American investment management and wealth management division of Bank of America . Along with BofA Securities , the investment banking arm, both firms engage in prime brokerage and broker-dealer activities. The firm is headquartered in New York City , and once occupied

200-547: A credit card . In 1978, it significantly buttressed its securities underwriting business by acquiring White Weld & Co. , a small but prestigious old-line investment bank. In the late 1990s, Maxim Shashenkov ( Russian : Максим Шашенков ), who was in charge of Alfa-Bank 's Alfa Securities Ltd, London, of the Alfa Group of companies, was formerly Vice President for Russia of the London branch of Merrill Lynch. In 1990,

300-505: A gay employee who was called a “stupid fag” by another employee. In August 2013, the company agreed to pay $ 160 million to settle a class action racism lawsuit brought by a longtime U.S. employee in 2005. At the time the lawsuit was filed, 2% of the brokers at the company were black , despite a 30-year-old consent decree it had signed with the EEOC that required the company to increase its proportion of black brokers to 6.5%, and despite

400-413: A $ 10 million (~$ 15 million in 2023) civil penalty to settle allegations of improper activities at the firm's Fort Lee, New Jersey office. Three financial advisors, and a fourth who was involved to a lesser degree, placed 12,457 trades for Millennium Partners, a client, in at least 521 mutual funds and 63 mutual fund sub-accounts of at least 40 variable annuities. Millennium made profits in over half of

500-555: A $ 42 million penalty. On 22 March 2019, Merrill Lynch agreed to pay more than $ 8 million (~$ 9.4 million in 2023) to settle charges of improper handling of pre-released American depositary receipts under investigation of the U.S. Securities and Exchange Commission. Merrill Lynch neither admitted nor denied the investigation findings but agreed to pay disgorgement of more than $ 4.4 million in ill-gotten gains plus $ 724,000 in prejudgment interest and an additional penalty of $ 2.89 million. Investment management Source: Venture

600-475: A $ 5.1 billion loan. In April 2009, bond insurance company MBIA sued Merrill Lynch for fraud and five other violations. These were related to the credit default swap "insurance" contracts Merrill had bought from MBIA on four of Merrill's mortgage-based collateralized debt obligations . These were the "ML-Series" CDOs, Broderick CDO 2, Highridge ABS CDO I, Broderick CDO 3, and Newbury Street CDO. MBIA claimed, among other things, that Merrill defrauded MBIA about

700-583: A 14% increase in the previous year and was due both to the recovery in equity markets during the year and an inflow of new funds. As of 2011 the US remained by far the biggest source of funds, accounting for around a half of conventional assets under management or some $ 36 trillion. The UK was the second-largest centre in the world and by far the largest in Europe with around 8% of the global total. The 3-P's (Philosophy, Process, and People) are often used to describe

800-576: A 70.1% premium over the September 12 closing price or a 38% premium over Merrill's book value of $ 21 (~$ 30.00 in 2023) a share, but a discount of 61% from its September 2007 price. Congressional testimony by Bank of America CEO Kenneth Lewis , as well as internal emails released by the House Oversight Committee , indicated that the merger was transacted under pressure from federal officials, who said that they would otherwise seek

900-410: A Philadelphia-based brokerage firm in which both Merrill Lynch and E.A. Pierce held an interest. and was briefly known as Merrill Lynch, E. A. Pierce, and Cassatt. The company became the first on Wall Street to publish an annual fiscal report in 1941. In 1941, Merrill Lynch, E. A. Pierce, and Cassatt merged with Fenner & Beane, a New Orleans–based investment bank and commodities company. Throughout

1000-552: A personal and business perspective. Greater money management can be achieved by establishing budgets and analyzing costs and income etc. In stock and futures trading , money management plays an important role in every success of a trading system. This is closely related with trading expectancy: “Expectancy” which is the average amount you can expect to win or lose per dollar at risk. Mathematically: Expectancy = (Trading system Winning probability * Average Win) – (Trading system losing probability * Average Loss) So for example even if

1100-514: A poor choice of benchmark. Meanwhile, it does not allow the separation of the performance of the market in which the portfolio is invested from that of the manager. The information ratio is a more general form of the Sharpe ratio in which the risk-free asset is replaced by a benchmark portfolio. This measure is relative, as it evaluates portfolio performance about a benchmark, making the result strongly dependent on this benchmark choice. Portfolio alpha

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1200-424: A reasonable price (GARP), market neutral , small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents, and in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth

1300-579: A report to the Finance Ministry, the Merrill Lynch group said it had acquired a 7.54% stake in TMS by purchasing 3.33 million shares. Merrill Lynch purchased the stake purely for investment purposes and had no intention of acquiring control of the firm's management. In November 2007, Merrill Lynch announced it would write-down $ 8.4 billion (~$ 11.9 billion in 2023) in losses associated with

1400-411: A specialist bachelor's degree , with title in "Investment Management" or in "Asset Management" or in "Financial Markets". Increasingly, those with aspirations to work as an investment manager, require further education beyond a bachelor's degree in business, finance, or economics. There is much discussion as to the various factors that can affect the performance of an investment manager, including

1500-428: A three-factor model to describe portfolio normal returns ( Fama–French three-factor model ). Carhart (1997) proposed adding momentum as a fourth factor to allow the short-term persistence of returns to be taken into account. Also of interest for performance measurement is Sharpe's (1992) style analysis model, in which factors are style indices. This model allows a custom benchmark for each portfolio to be developed, using

1600-405: A trading system has 60% losing probability and only 40% winning of all trades, using money management a trader can set his average win substantially higher compared to his average loss in order to produce a profitable trading system. If he set his average win at around $ 400 per trade (this can be done using proper exit strategy) and managing/limiting the losses to around $ 100 per trade; the expectancy

1700-476: A winning or losing trading system, such as %Loss probability > %Win probability). Edmund C. Lynch Edmund Calvert Lynch (May 19, 1885 – May 12, 1938) and his friend, Charles E. Merrill , formed Merrill Lynch on October 15, 1915. Of Irish descent, Edmund Lynch was born on May 19, 1885, in Baltimore, Maryland , to Richard H. Lynch and Jennie Vernon Smith Lynch. Edmund Calvert Lynch attended

1800-653: Is a strategic technique to make money yield the highest interest-output value for any amount spent. Spending money to satisfy cravings (regardless of whether they can justifiably be included in a budget) is a natural human phenomenon. The idea of money management techniques has been developed to reduce the amount that individuals, firms, and institutions spend on items that add no significant value to their living standards, long-term portfolios, and assets. Warren Buffett , in one of his documentaries, admonished prospective investors to embrace his highly esteemed "frugality" ideology. This involves making every financial transaction worth

1900-415: Is around: Expectancy = (Trading system Winning probability * Average Win) – (Trading system losing probability * Average Loss) Expectancy = (0.4 x 400) - (0.6 x 100)=$ 160 - $ 60 = $ 100 net average profit per trade (of course commissions are not included in the computations). Therefore, the key to successful money management is maximizing every winning trades and minimizing losses (regardless whether you have

2000-467: Is because equities are riskier (more volatile) than bonds which are themselves riskier than cash. Against the background of the asset allocation, fund managers consider the degree of diversification that makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification

2100-853: Is estimated that Lynch's intuition saved his clients over $ 83 million (approx. $ 1.3B adjusted for inflation). Edmund Lynch married Signa Janney Fornaris in 1923 with whom he had three children: Vernon, Edmund Calvert Jr. (who later joined his father's firm ), and Signa Janney. Vernon married Robert G. Merrill, whose father was Joseph Merrill. Vernon and Robert had six children: Lynn Gray, Gail Merrill, Edmund Merrill, Douglas Merrill, Signa Hermann, and Nina Merrill. They also have nine grandchildren: Kelli Merrill, Austen (Baron) Gray, Dustin Merrill, Lily Gray, Nick Merrill, Merrill Hermann, Taylor Ogan, Robert Hermann III, and Chase Merrill. He died in London, England while on business, on May 12, 1938. Upon his death, he bequeathed $ 59,000 to Johns Hopkins medical school in

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2200-409: Is going to change it—and thereby honor the man who has been largely responsible for making the name of a brokerage house part of an American saga," Winthrop H. Smith , who had been running the company since 1940. The merger made the company the largest securities firm in the world, with offices in more than 98 cities and membership on 28 exchanges. At the start of the firm's fiscal year on March 1, 1958,

2300-418: Is obtained by measuring the difference between the return of the portfolio and that of a benchmark portfolio. This measure appears to be the only reliable performance measure to evaluate active management. we have to distinguish between normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained through passive management, from abnormal performance (or outperformance) due to

2400-422: Is often used to refer to the management of investment funds , most often specializing in private and public equity , real assets , alternative assets , and/or bonds. The more generic term asset management may refer to management of assets not necessarily primarily held for investment purposes. Most investment management clients can be classified as either institutional or retail/advisory , depending on if

2500-404: Is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully. Large asset managers are increasingly profiling their equity portfolio managers to trade their orders more effectively. While this strategy is less effective with small-cap trades, it has been effective for portfolios with large-cap companies. Fund performance is often thought to be

2600-437: Is that the investment manager prefers a closer, more open, and honest relationship with a company's management team than would exist if they exercised control; allowing them to make a better investment decision. The national context in which shareholder representation considerations are set is variable and important. The USA is a litigious society and shareholders use the law as a lever to pressure management teams. In Japan, it

2700-557: Is the case when a large active manager sells his position in a company, leading to (possibly) a decline in the stock price, but more importantly a loss of confidence by the markets in the management of the company, thus precipitating changes in the management team. Some institutions have been more vocal and active in pursuing such matters; for instance, some firms believe that there are investment advantages to accumulating substantial minority shareholdings (i.e. 10% or more) and putting pressure on management to implement significant changes in

2800-422: Is to report the after-tax position of some standard taxpayer. Performance measurement should not be reduced to the evaluation of fund returns alone, but must also integrate other fund elements that would be of interest to investors, such as the measure of risk taken. Several other aspects are also part of performance measurement: evaluating if managers have succeeded in reaching their objective, i.e. if their return

2900-439: Is traditional for shareholders to be below in the 'pecking order', which often allows management and labor to ignore the rights of the ultimate owners. Whereas US firms generally cater to shareholders, Japanese businesses generally exhibit a stakeholder mentality, in which they seek consensus amongst all interested parties (against a background of strong unions and labor legislation ). Conventional assets under management of

3000-413: Is what investment management firms are paid for. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of money among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably,

3100-701: The Boys' Latin School of Maryland in Baltimore and graduated from Johns Hopkins University in 1907. Edmund Lynch met Charles E. Merrill when Lynch was a stockbroker on Wall Street . In 1907, Merrill moved into Lynch's room at the YMCA 's boarding house while trying to find a place to live in New York City . The two men shared their ideas of starting a brokerage, and became great friends. On October 15, 1914, Charles E. Merrill and Lynch started Merrill Lynch . Lynch

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3200-454: The CAPM , allowing a better description of portfolio risks and a more accurate evaluation of a portfolio's performance. For example, Fama and French (1993) have highlighted two important factors that characterize a company's risk in addition to market risk. These factors are the book-to-market ratio and the company's size as measured by its market capitalization. Fama and French-, therefore proposed

3300-481: The New York Stock Exchange allowed member firms to become publicly-owned. It was a multinational corporation with over US$ 1.8 trillion in client assets operating in more than 40 countries around the world. In 1977, the company introduced its Cash management account (CMA), which enabled customers to transfer all their cash into a money market fund , and included check-writing capabilities and

3400-621: The subprime mortgage crisis , and terminated E. Stanley O'Neal as its chief executive. O'Neal had earlier approached Wachovia for a merger, without prior Board approval, but the talks ended after O'Neal's dismissal. Merrill Lynch named John Thain as its new CEO that month. In his first days at work in December 2007, Thain made changes in Merrill Lynch's top management, announcing that he would bring in former New York Stock Exchange (NYSE) colleagues such as Nelson Chai as CFO and Margaret D. Tutwiler as head of communications. Later that month,

3500-583: The 1930s, Fenner & Beane was consistently the second largest securities firm in the U.S. The combined firm, which became the clear leader in securities brokerage in the U.S., was renamed Merrill Lynch, Pierce, Fenner & Beane. In 1952, the company formed Merrill Lynch & Co. as a holding company and officially incorporated after nearly half a century as a partnership. On December 31, 1957, The New York Times referred to that name as "a sonorous bit of Americana" and said, "After sixteen years of popularizing [it], Merrill Lynch, Pierce, Fenner, and Beane

3600-657: The CDOs lost value, MBIA wound up owing Merrill a large amount of money. Merrill disputed MBIA's claims. In 2009, Rabobank sued Merrill over a CDO named Norma. Rabobank later claimed that its case against Merrill was very similar to the SEC's fraud charges against Goldman Sachs and its Abacaus CDOs . Rabobank alleged that a hedge fund named Magnetar Capital had chosen assets to go into Norma, and allegedly bet against them, but that Merrill had not informed Rabobank of this fact. Instead, Rabobank alleges that Merrill told it that NIR Group

3700-483: The Merrill Lynch name, including the broker-dealer Merrill Lynch, Pierce, Fenner & Smith. In 2019, Bank of America rebranded the unit to "Merrill". Merrill Lynch rose to prominence on the strength of its network of financial advisors, sometimes referred to as the "thundering herd", that allowed it to place securities it underwrote directly. In contrast, many established Wall Street firms, such as Morgan Stanley , relied on groups of independent brokers for placement of

3800-463: The New York attorney general and other state securities regulators, Merrill Lynch agreed to increase research disclosure and work to decouple research from investment banking. Between 1999 and 2001, during the dot-com bubble , Henry Blodget , a well-known analyst at Merrill Lynch, gave assessments about stocks in private emails that conflicted with what he publicly published via Merrill. In 2003, he

3900-545: The US or BI-SAM in Europe) compile aggregate industry data, e.g., showing how funds in general performed against given performance indices and peer groups over various periods. In a typical case (let us say an equity fund ), the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g., +4.6% total return in US dollars). This figure would be compared with other similar funds managed within

4000-589: The United States and less so in Europe. However, as of 2019, the lines were becoming blurred. Money management is used in investment management and deals with the question of how much risk a decision maker should take in situations where uncertainty is present. More precisely what percentage or what part of the decision maker's wealth should be put into risk in order to maximize the decision maker's utility function . Money management can mean gaining greater control over outgoings and incomings, both in

4100-545: The United States, refers to both a firm that provides investment management services and to the individual who directs fund management decisions. The five largest asset managers are holding 22.7 percent of the externally held assets. Nevertheless, the market concentration, measured via the Herfindahl-Hirschmann Index , could be estimated at 173.4 in 2018, showing that the industry is not very concentrated. The business of investment has several facets,

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4200-429: The acid test of fund management, and in the institutional context, accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialize in performance measurement. The leading performance measurement firms (e.g. Russell Investment Group in

4300-543: The banks and securities firms that allegedly helped Enron execute its accounting scandals . The case revolved around a 1999 transaction involving Merrill, Enron and the sale of some electricity-producing barges off the coast of Nigeria. The charges alleged that the 1999 sale of an interest in Nigerian power barge by an Enron entity to Merrill Lynch was a sham that allowed Enron to illegally book about $ 12 million (~$ 20.6 million in 2023) in pretax profit, when in fact there

4400-655: The board includes expertly overseeing speculation portfolios for the benefit of clients to accomplish their monetary objectives. This incorporates key resource designation, developing broadened portfolios, and effectively observing execution while relieving gambles. Speculation administrators use exploration and examination to recognize valuable open doors and pursue informed choices, guaranteeing portfolios line up with client targets and hazard resilience. In addition, successful investment management requires adherence to ethical standards, compliance with regulations, and effective communication with clients. The term investment management

4500-735: The bullish stock market was so strong that he went to the White House in 1928 and warned President Calvin Coolidge of his intuition. During his meeting with the President, Lynch famously even offered to make President Coolidge a partner of his firm, but the President turned down his offer. When later asked of his incredible foresight in 1933, Lynch told the New York Times , "The lesson that I had learned--when stocks are too high they come down--stood me in good stead in 1928-29." It

4600-467: The business. In some cases, institutions with minority holdings work together to force management change. Perhaps more frequent is the sustained pressure that large institutions bring to bear on management teams through persuasive discourse and PR. On the other hand, some of the largest investment managers—such as BlackRock and Vanguard —advocate simply owning every company, reducing the incentive to influence management teams. A reason for this last strategy

4700-423: The case after the reversal of the verdict. Merrill reached its own settlement, firing bankers and agreeing to the outside oversight of its structured-finance transactions. It also settled civil fraud charges brought by the U.S. Securities and Exchange Commission, without admitting or denying fault. On June 26, 2007, the U.S. Equal Employment Opportunity Commission (EEOC) brought suit against Merrill Lynch, alleging

4800-514: The client is an institution or private individual/ family trust . Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as money management or portfolio management within the context of " private banking ". Wealth management by financial advisors takes a more holistic view of a client, with allocations to particular asset management strategies. The term fund manager, or investment adviser in

4900-472: The companies in which they hold shares (e.g., to hold managers to account, to ensure Board's effective functioning). Such action would add a pressure group to those (the regulators and the Board) overseeing management. However, there is the problem of how the institution should exercise this power. One way is for the institution to decide, the other is for the institution to poll its beneficiaries. Assuming that

5000-441: The companies via the voting rights the shares carry and the consequent ability to pressure managements, and if necessary out-vote them at annual and other meetings. In practice, the ultimate owners of shares often do not exercise the power they collectively hold (because the owners are many, each with small holdings); financial institutions (as agents) sometimes do. Institutional shareholders should exercise more active influence over

5100-563: The company announced the sale of select hedge funds and securities in an effort to reduce their exposure to mortgage-related investments. Temasek Holdings agreed to purchase the funds and increase its investment in the company by $ 3.4 billion. Then- New York Attorney General Andrew Cuomo threatened to sue Merrill Lynch in August 2008 over its misrepresentation of the risk on mortgage-backed securities. A week earlier, Merrill Lynch had offered to buy back $ 12 billion in auction-rate debt and said it

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5200-518: The company sold its Canadian private client operations to CIBC Wood Gundy . In June 1998, Merrill Lynch re-entered the Canadian investment business with its purchase of Midland Walwyn Inc . At the time, Canada was the seventh-largest market for personal investment. In December 2001, Merrill Lynch sold Midland Walwyn to CIBC Wood Gundy. In 2003, Merrill Lynch became the second-largest shareholder of Japanese animation studio TMS Entertainment . In

5300-605: The company to pay Fariborz Zojaji, a former Iranian employee, $ 1.6 million (~$ 2.27 million in 2023) for being fired due to his Persian ethnicity. Merrill Lynch was criticized by both the National Iranian American Council , and the American-Arab Anti-Discrimination Committee . On August 13, 2008, a New Jersey appeals court rendered a ruling against Merrill Lynch in a lawsuit filed by Darren Kwiatkowski,

5400-400: The county to file for bankruptcy in December 1994. The county sued a dozen or more securities companies, advisors and accountants, but Merrill settled without admitting liability, paying $ 400 million of a total $ 600 million recovered by the county. In 2002, Merrill Lynch agreed to pay out $ 100 million (~$ 162 million in 2023) for publishing misleading research. As part of the agreement with

5500-616: The employment of professional fund managers, research (of individual assets and asset classes ), dealing, settlement, marketing, internal auditing , and the preparation of reports for clients. The largest financial fund managers are firms that exhibit all the complexity their size demands. Apart from the people who bring in the money (marketers) and the people who direct investment (the fund managers), there are compliance staff (to ensure accord with legislative and regulatory constraints), internal auditors of various kinds (to examine internal systems and controls), financial controllers (to account for

5600-527: The entire 34 stories of 250 Vesey Street , part of the Brookfield Place complex in Manhattan . Merrill employs over 14,000 financial advisors and manages $ 2.8 trillion in client assets ($ 3.4 trillion for Global Wealth and Investment Management). The company also operates Merrill Edge , a division for investment and related services, including call center counsultancy. Prior to 2009, the company

5700-800: The expense: 1. avoid any expense that appeals to vanity or snobbery 2. always go for the most cost-effective alternative (establishing small quality-variance benchmarks, if any) 3. favor expenditures on interest-bearing items over all others 4. establish the expected benefits of every desired expenditure using the canon of plus/minus/nil to the standard of living value system. These techniques are investment-boosting and portfolio-multiplying. There are certain companies as well that offer services, provide counseling and different models for managing money. These are designed to manage grace assets and make them grow. Wealth management , where financial advisors perform financial planning for clients, has traditionally served as an intermediary to investment managers in

5800-408: The fact that in 25 states, the company did not have a single black broker. The funds were available to all black brokers and trainees at the firm since May 2001, estimated to be 700–1,200 people. During the case, Merrill's black CEO, Stanley O'Neal , said that black brokers may have a harder time getting business for the company since most of its clients were white . In March 2005, Merrill Lynch paid

5900-403: The firm a strong presence in the government securities market. The Government Securities business brought Merrill Lynch the needed leverage to establish many of the unique money market products and government bond mutual fund products, responsible for much of the firm's growth in the 1970s and 1980s. In June 1971, the company became a public company via an initial public offering , a year after

6000-600: The firm announced it would sell its commercial finance business to General Electric , and would sell shares of its stock to Temasek Holdings , a Singapore government investment group, in an effort to raise capital. The deal raised more than $ 6 billion. In July 2008, Thain announced $ 4.9 billion fourth-quarter losses for the company from defaults and bad investments in the ongoing mortgage crisis. In one year between July 2007 and July 2008, Merrill Lynch lost $ 19.2 billion, or $ 52 million daily. The company's stock price had also declined significantly during that time. Two weeks later,

6100-452: The firm discriminated against Dr. Majid Borumand because of his Iranian nationality and Islamic religion, with "reckless disregard" for his protected civil rights. The EEOC lawsuit maintained that violations by the company were intentional and committed with malice . In another case concerning mistreatment of another Iranian employee by Merrill Lynch, on July 20, 2007, a National Association of Securities Dealers arbitration panel ordered

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6200-405: The firm through a major restructuring, spinning-off the company's retail brokerage business to E. A. Pierce & Co. to focus on investment banking. Along with the business, Merrill also transferred the bulk of its employees, including Edmund C. Lynch and Winthrop H. Smith . Charles Merrill received a minority interest in E.A. Pierce in the transaction. Throughout the 1930s, E.A. Pierce remained

6300-496: The firm's name became "Merrill Lynch, Pierce, Fenner & Smith" and the company became a member of the New York Stock Exchange . In 1964, Merrill Lynch acquired C. J. Devine & Co., the leading dealer in U.S. Government Securities. The merger came together due to the death of Christopher J. Devine in May 1963. The C. J. Devine & Co. partners, referred to as "The Devine Boys", formed Merrill Lynch Government Securities Inc., giving

6400-498: The firm's name included a comma between Merrill and Lynch , which was dropped in 1938. In 1916, Winthrop H. Smith joined the firm. In 1921, the company purchased Pathé Exchange , which later became RKO Pictures . In 1926, the firm acquired a controlling interest in Safeway Inc. , transforming the small grocery store into the country's third-largest grocery store chain by the early 1930s. In 1930, Charles E. Merrill led

6500-557: The firm, beginning in October 2008 and expanding in January 2009. On September 5, 2008 Goldman Sachs downgraded Merrill Lynch's stock to "conviction sell" and warned of further losses at the company. Bloomberg reported in September 2008 that Merrill Lynch had lost $ 51.8 billion (~$ 72 billion in 2023) on mortgage-backed securities as part of the subprime mortgage crisis. Merrill Lynch, like many other banks, became heavily involved in

6600-401: The form of collateralized debt obligations . Trading partners' loss of confidence in Merrill Lynch's solvency and ability to refinance money market obligations ultimately led to its sale. During the week of September 8, 2008, Lehman Brothers came under severe liquidity pressures, with its survival in question. If Lehman Brothers failed, investors were afraid that the contagion could spread to

6700-621: The funds and fund sub-accounts. In those funds where Millennium made profits, its gains totalled about $ 60 million. Merrill Lynch failed to reasonably supervise these financial advisers, whose market timing siphoned short-term profits out of mutual funds and harmed long-term investors. In 2008, Merrill Lynch arranged for payment $ 3.6 billion in bonuses, one-third of the money received from the Troubled Asset Relief Program , for performance that year in what appeared to be "special timing," despite reported losses of $ 27 billion

6800-479: The global fund management industry increased by 10% in 2010, to $ 79.3 trillion. Pension assets accounted for $ 29.9 trillion of the total, with $ 24.7 trillion invested in mutual funds and $ 24.6 trillion in insurance funds. Together with alternative assets (sovereign wealth funds, hedge funds, private equity funds, and exchange-traded funds) and funds of wealthy individuals, assets of the global fund management industry totalled around $ 117 trillion. Growth in 2010 followed

6900-577: The heart of the investment management industry are the managers who invest and divest client investments. A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments. The different asset class definitions are widely debated, but four common divisions are cash and fixed income (such as certificates of deposit), stocks , bonds and real estate . The exercise of allocating funds among these assets (and among individual securities within each asset class)

7000-410: The influence of the business cycle. This can be difficult however and, industry-wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions). One effective solution to this problem is to include a minimum evaluation period in the investment management agreement, whereby the minimum evaluation period equals

7100-566: The institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where available) or tailor-made performance benchmarks where appropriate. The specialist performance measurement firms calculate quartile and decile data and close attention would be paid to the (percentile) ranking of any fund. It is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short-term fluctuations in performance and

7200-414: The institution polls, should it then: (i) Vote the entire holding as directed by the majority of votes cast? (ii) Split the vote (where this is allowed) according to the proportions of the vote? (iii) Or respect the abstainers and only vote the respondents' holdings? The price signals generated by large active managers holding or not holding the stock may contribute to management change. For example, this

7300-413: The institutions' own money and costs), computer experts, and "back office" employees (to track and record transactions and fund valuations for up to thousands of clients per institution). Key problems include: Institutions often control huge shareholdings. In most cases, they are acting as fiduciary agents rather than principals (direct owners). The owners of shares theoretically have great power to alter

7400-485: The investment manager's investment horizon. An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realised capital gains (and not unrealised). It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results. One possible solution

7500-438: The largest brokerage in the U.S. The firm, led by Edward A. Pierce , Edmund Lynch and Winthrop Smith proved to be one of the most innovative in the industry, introducing IBM machines into the business's record keeping. Additionally, by 1938, E.A. Pierce controlled the largest wire network with a private network of over 23,000 miles of telegraph wires. These wires were typically used for orders . Despite its strong position in

7600-442: The largest subprime lenders in the country, in December 2006. Between 2006 and 2007, Merrill was "lead underwriter" on 136 CDOs worth $ 93 billion. By the end of 2007, the value of these CDOs was collapsing, but Merrill had held onto portions of them, creating billions of dollars in losses for the company. In mid-2008, Merrill sold a group of CDOs that had once been valued at $ 30.6 billion to Lone Star Funds for $ 1.7 billion in cash and

7700-454: The linear combination of style indices that best replicate portfolio style allocation, and leads to an accurate evaluation of portfolio alpha. However, certain research indicates that internet data may not necessarily enhance the precision of predictive models. At the undergraduate level, several business schools and universities internationally offer "Investments" as a subject within their degree; further, some universities, in fact, confer

7800-548: The manager's qualifications. Some conclude that there is no evidence that any particular qualification enhances the manager's ability to select investments that result in above-average returns. But see also Chartered Financial Analyst § Efficacy of the CFA program re related research. Money management is the process of expense tracking, investing, budgeting, banking and evaluating taxes of one's money, which includes investment management and wealth management . Money management

7900-413: The manager's skill (or luck), whether through market timing , stock picking , or good fortune. The first component is related to allocation and style investment choices, which may not be under the sole control of the manager, and depends on the economic context, while the second component is an evaluation of the success of the manager's decisions. Only the latter, measured by alpha, allows the evaluation of

8000-515: The manager's true performance (but then, only if you assume that any outperformance is due to the skill and not luck). Portfolio returns may be evaluated using factor models. The first model, proposed by Jensen (1968), relies on the CAPM and explains portfolio returns with the market index as the only factor. It quickly becomes clear, however, that one factor is not enough to explain the returns very well and that other factors have to be considered. Multi-factor models were developed as an alternative to

8100-404: The market, E.A. Pierce was struggling financially in the 1930s and was thinly capitalized. Following the death of Edmund C. Lynch in 1938, Winthrop Smith began discussions with Charles E. Merrill , who owned a minority interest in E.A. Pierce about a possible merger of the two firms. On April 1, 1940, Merrill Lynch, merged with Edward A. Pierce 's E. A. Pierce & Co. and Cassatt & Co. ,

8200-567: The mortgage-based collateralized debt obligation (CDO) market in the early 2000s. According to an article in Credit magazine, Merrill's rise to be the leader of the CDO market began in 2003 when Christopher Ricciardi brought his CDO team from Credit Suisse First Boston to Merrill. To provide a ready supply of mortgages for the CDOs, Merrill purchased First Franklin Financial Corp. , one of

8300-495: The newly formed BofA Securities . On June 21, 2010, the company launched Merrill Edge , an electronic trading platform . In February 2019, Bank of America announced the division was to be rebranded from "Merrill Lynch" to "Merrill". In 1998, Merrill Lynch paid Orange County, California $ 400 million (~$ 698 million in 2023) to settle accusations that it sold inappropriate and risky investments to former county treasurer Robert Citron . Citron lost $ 1.69 billion, which forced

8400-486: The notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios ( Sharpe ratio , information ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best-known performance measure. It measures the return of a portfolio over above the risk-free rate, compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer to any benchmark, avoiding drawbacks related to

8500-406: The other surviving investment banks. On Sunday, September 14, 2008, Bank of America announced it was in talks to purchase Merrill Lynch for $ 38.25 billion (~$ 53.2 billion in 2023) in stock. Later that day, Merrill Lynch was sold to Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, or about US$ 50 billion or $ 29 per share. This price represented

8600-447: The quality of these CDOs, and that it was using the complicated nature of these particular CDOs (CDOs squared and cubed) to hide the problems it knew about in the securities that the CDOs were based on. However, in 2010 Justice Bernard Fried disallowed all but one of the charges: the claim by MBIA that Merrill had committed breach of contract by promising the CDOs were worthy of an AAA rating when, it alleges, in reality, they weren't. When

8700-471: The reasons why the manager can produce above-average results. Ethical or religious principles may be used to determine or guide the way in which money is invested. Christians tend to follow the Biblical scripture . Several religions follow Mosaic law which proscribed the charging of interest . The Quakers forbade involvement in the slave trade and so started the concept of ethical investment . At

8800-509: The replacement of Bank of America's management as a condition of any government assistance. In March 2009, it was reported that in 2008, Merrill Lynch received billions of dollars from its insurance arrangements with AIG , including $ 6.8 billion from funds provided by the United States government to bail out AIG. After merging Merrill Lynch into its businesses, Bank of America continued to operate Merrill Lynch for its wealth management services and integrated Merrill Lynch's investment bank into

8900-663: The same year. In 2010, a Merrill Lynch trader in London who mismarked positions he had on behalf of the bank by $ 100 million (~$ 136 million in 2023) to cover up his losses was banned by the United Kingdom's Financial Services Authority (FSA) from working in the securities industry in the UK for at least five years. On 19 June 2018, the U.S. Securities and Exchange Commission (SEC) charged Merrill Lynch of misleading brokerage customers about trading venues between 2008 and 2013. Merrill Lynch admitted wrongdoing and agreed to pay

9000-455: The securities they underwrote. It was once known as the "Catholic" firm of Wall Street and most of its executives were Irish Catholics . The company was founded on January 6, 1914, when Charles E. Merrill opened Charles E. Merrill & Co. for business at 7 Wall Street in New York City . A few months later, Merrill's friend, Edmund C. Lynch , joined him, and in 1915 the name was officially changed to Merrill, Lynch & Co. At that time,

9100-639: The skill of a successful investment manager resides in constructing the asset allocation, and separating individual holdings, to outperform certain benchmarks (e.g., the peer group of competing funds, bonds, and stock indices). It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (e.g. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this

9200-882: The soaring stock market in 1928, Lynch was convinced a disaster was near. His famous letter to all of Merrill Lynch's clients warned: Now is the time to get out of debt. We think you should know that with a few exceptions all the larger companies financed by us today have no funded debt. This is not the result of luck but of carefully considered plans on the part of their managements and ourselves to place these companies in an impregnable position. The advice that we have given important corporations can be followed to advantage by all classes of investors. We do not urge you to sell securities indiscriminately, but we advise you in no uncertain terms that you take advantage of present high prices and put your own financial house in order. We recommend that you sell enough securities to lighten your obligations, or better yet, pay them entirely. Lynch's concern for

9300-476: Was charged with civil securities fraud by the U.S. Securities and Exchange Commission . He settled without admitting or denying the allegations and was subsequently barred from the securities industry for life. He paid a $ 2 million fine and $ 2 million disgorgement. In 2004, convictions of Merrill executives marked the only instance in the Enron investigation where the government criminally charged any officials from

9400-557: Was especially known for helping create, finance, and broker many large chain-stores in the United States, including S.S. Kresge Corporation (now Kmart ), J. C. Penney , and Safeway Inc. Lynch also purchased the pioneering French movie company Pathé Exchange in 1921, and later rebranded it to Keith-Orpheum ( RKO Pictures ). Edmund C. Lynch gained special notoriety when he foresaw the impending Wall Street Crash of 1929 , and advised Merrill Lynch 's clients to sell many of their stock holdings in 1928. As many Americans were enjoying

9500-502: Was no real sale and no real profit. Four former Merrill top executives and two former midlevel Enron officials faced conspiracy and fraud charges. The Merrill Lynch executives were convicted, but, unusually, all three of those that appealed subsequently had their charges overturned by the 5th U.S. Circuit Court of Appeals in New Orleans who called the conspiracy and wire fraud charges "flawed." The Justice Department decided not to retry

9600-413: Was originated by Markowitz (and many others). Effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns. There is a range of different styles of fund management that the institution can implement. For example, growth , value, growth at

9700-521: Was publicly owned and traded on the New York Stock Exchange . Merrill Lynch & Co. agreed to be acquired by Bank of America on September 14, 2008, at the height of the 2007–2008 financial crisis , the same weekend that Lehman Brothers was allowed to fail . The acquisition was completed in January 2009 and Merrill Lynch & Co., Inc. was merged into Bank of America Corporation in October 2018, with certain Bank of America subsidiaries continuing to carry

9800-489: Was selecting the assets. When the CDO value tanked, Rabobank was left owing Merrill a large amount of money. Merrill disputed the arguments of Rabobank , with a spokesman claiming "The two matters are unrelated and the claims today are not only unfounded but weren't included in the Rabobank lawsuit filed nearly a year ago". Significant losses were attributed to the drop in value of its large and unhedged mortgage portfolio in

9900-527: Was sufficiently high to reward the risks taken; how they compare to their peers; and finally, whether the portfolio management results were due to luck or the manager's skill. The need to answer all these questions has led to the development of more sophisticated performance measures, many of which originate in modern portfolio theory . Modern portfolio theory established the quantitative link that exists between portfolio risk and returns. The capital asset pricing model (CAPM) developed by Sharpe (1964) highlighted

10000-566: Was surprised by the lawsuit. Three days later, the company froze hiring and revealed that it had charged almost $ 30 billion in losses to its subsidiary in the United Kingdom, exempting them from taxes in that country. On August 22, 2008, CEO John Thain announced an agreement with the Massachusetts Secretary of the Commonwealth to buy back all auction-rate securities from customers with less than $ 100 million in deposit with

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