The Year of the Dog? Merrill Lynch hopes to see Year of the Bull
The sun never sets on the Merrill Lynch bull.
The nation's largest broker has always been known on Main Street. Now it has embarked on a program to make its bull as well known in Hong Kong, Singapore, Tokyo, or London as it is in Des Moines.
As part of this strategy, it is involved in a global expansion to try to leave its hoofmark on some markets it hasn't before trod in.
So far that expansion has entailed the purchase last May, for $81 million, of a 25 percent interest in a Hong Kong securities, bank, and land-development company, Sun Hung Kai Securities Ltd. This will probably lead to a greater expansion in Japan and possibly Australia. And, possibly further in the future, it may mean the bull will set up shop in the most populous market in the world, the People's Republic of China. Already, Merrill Lynch executives feel as though they have their foot in the door to become an investment banker for the Chinese.
Michael Lipper, president of Lipper Analytical Distributors Inc., a Wall Street research firm, says the Merrill Lynch move is part of a strategy to expand in real estate, insurance, and the international markets. He says it is making these moves because it feels expansion in these areas will enable it to grow faster than it would if it mainly remained a broker in the United States. ''If you are Merrill Lynch and you want to grow more evenly and faster than the brokerage business, it's tough unless you are outside of it,'' Mr. Lipper said.
Although Merrill's executives are quick to point out that the international expansion is not designed to detract from its effort domestically, William Schreyer, the president, said in a recent interview that it was working hard to think more globally. As part of this effort, he has assigned two top executives, Charles Ross Jr. and Edmond N. Moriarty Jr., co-chairmen of the Merrill Lynch White Weld Capital Markets Group, the task of trying to orient the company more internationally.
How exactly will Merrill Lynch do this?
Mr. Ross, in an interview, said one example would be the more sophisticated use of different markets operating in different time zones. Thus, if Merrill Lynch was carrying a position for itself in a security when the markets closed in the US, its Hong Kong or Tokyo branch might trade that position before passing it on to London and then back to New York.
''You must be conscious of time zones and different currencies,'' Mr. Ross said.
The big broker also hopes to incorporate foreign research products into the daily diet of reports its large domestic staff turns out. Mr. Ross said Sun Hung Kai ''has a very strong research department, and we certainly intend to make that research available to our own customers.'' Sun Hung Kai, in turn, will have access to Merrill Lynch's research product.
For Merrill Lynch to be successful internationally will not be easy. Competition in the world markets is fierce. Local companies try to keep out large international ones. For example, in Japan, foreigners cannot join the Tokyo Stock Exchange. And even if they could, it requires putting down a ''deposit'' of $3 million or $4 million before being allowed to join.
Mr. Ross says Merrill Lynch is still weighing whether or not it would be worthwhile to attempt to get the Japanese to change the rules and join. Japanese securities firms are allowed to join the US exchanges. Merrill Lynch officials are sensitive to any discussions about Japan, since they already have their largest foreign office there.
US firms have long been established in Europe, and Merrill Lynch owns a bank in London with $1 billion in assets. ''We are very bullish on Western Europe and Japan,'' Mr. Ross said. Merrill Lynch currently does all of its international trading out of London. With the slowing of the European economies, however, the focus has been on Asia.
Merrill Lynch, in fact, already had a large office in Hong Kong before it made its investment in Sun Hung Kai. Mr. Ross said that Hong Kong ''is the jumping-off point for the development of a strong presence in South East Asia in securities trading, bullion trading, and real estate.'' With Hong Kong's free markets, it attracts a lot of ''flight capital.'' This cash presents opportunity.
The reason Merrill acquired Sun Hung Kai even though it already had offices in Hong Kong was simple: its chairman, Fung King Hey. Mr. Fung is extremely well connected - especially to officials of the People's Republic. As Euromoney magazine noted in an article last summer, ''the man (Fung) who fled prewar China and worked in a Hong Kong dockyard for 13 cents a day is now publicly received with pomp and ceremony by the highest officials of the Chinese government, who appear to regard him as important to their interests in Hong Kong, not as the youth who later shunned the Communist utopia.'' The magazine added that he is also on ''excellent terms'' with the world's largest banks and ''is treated as an equal by them.''
Ross, Schreyer, and another Merrill executive recently had an opportunity to see Mr. Fung's mainland connections firsthand when the Chinese dedicated a 28 -story building in Shanghai last month. Among the honored guests at the dedication was Mr. Fung, who brought along the Merrill Lynch executives. During their visit in Shanghai they stayed in the late Chairman Mao's summer residence, where President Richard Nixon and Henry Kissinger negotiated the famous 1972 Chinese-US agreement. And they met with the governors of the provinces of Hangzhou and Shanghai, signing agreements to help the economic development of the two provinces. Without Mr. Fung, Mr. Ross said, ''we would never have gotten the opportunity to meet with these people.''