A County in California Allows Merrill to Come Back
By PETER EDMONSTON
December 14, 2006
After 12 years in the penalty box, Merrill Lynch is back in business in Orange County.
The county, in Southern California, once accused Merrill of helping tip it into bankruptcy. This week, the county’s board of supervisors voted to put the investment bank on its list of firms qualified to provide it with underwriting services.
Merrill’s inclusion, which the board of supervisors approved Tuesday by a 3-to-1 vote, is the latest milestone in Orange County’s sometimes rocky reconciliation with one of Wall Street’s largest investment banks.
Three years ago, the county board voted 3 to 2 to permit dealings with Merrill’s trading desk. This week’s measure clears the way for Merrill to compete with 22 other firms, including Goldman Sachs, Morgan Stanley and J. P. Morgan Chase, for underwriting work as well.
“Sometimes you’ve got to say the war is over,” said John M. W. Moorlach, a county supervisor who voted in favor of adding Merrill to the list.
A Merrill Lynch spokesman, Bill Halldin, said yesterday, “We look forward to the opportunity to compete for more of the county’s business.”
Orange County, the nation’s fifth-largest county by population, suffered a collapse in December 1994 and filed the largest municipal bankruptcy case in United States history. A county-run investment pool lost $1.6 billion after its bets on the direction of interest rates went bad.
The next year, the county sued Merrill, contending that the firm sold it unsuitably risky securities and encouraged it to leverage those investments with borrowed funds. It sought $2 billion in damages.
At the time, Merrill defended its dealings and said that Orange County’s treasurer at the time, Robert L. Citron, was responsible for the ill-fated investment strategy. But in June 1998, Merrill chose to pay $400 million to settle the litigation.
Though the suit was resolved, mistrust of Merrill persisted for years among some county supervisors.
“It’s an emotional issue for the leadership of this county,” Mr. Moorlach, the county supervisor, said.
Rather than holding a grudge, the county is better served by promoting greater competition in the capital-raising process, he said. Putting Merrill in the pool of possible underwriters is one way to promote such competition, he added.
Mr. Moorlach’s support for Merrill is notable because he was one of the fiercest critics of Orange County’s investment strategy in the months leading up to its bankruptcy. In 1994, during his unsuccessful campaign to unseat Mr. Citron as treasurer, he warned about the potential risks to the county’s finances.
Mr. Citron resigned shortly before the bankruptcy filing and was succeeded by Mr. Moorlach a few months later. Mr. Moorlach was elected as a county supervisor earlier this year.
Thomas W. Wilson, the only supervisor to vote against adding Merrill to the list, suggested that many in Orange County were not ready to call a truce. The bankruptcy, and Merrill’s role in it, caused lasting damage to the county’s finances that it will continue to deal with for years, he said.
“Until the debts from the bankruptcy are satisfied, Merrill Lynch is going to stand out in a lot of people’s minds around here,” he said.
Mr. Moorlach said Orange County continued to pay about $90 million each year for debts carried over from the bankruptcy. The debts should be completely paid off by the year 2016.