Greg Fleming hurtles through the door of a plush City meeting room. The
45-year-old Merrill Lynch president and chief operating officer is running
on empty, the jetlag is starting to kick in and he needs coffee - fast.
He had flown through the night from New York to address the bank's staff at a
“town hall” meeting last Wednesday. It is now 5.30pm on the day of the
meeting and he has exactly one hour before rushing off to a dinner he is
hosting that night.
Then it is on to the Eurostar for a meeting next day of the bank's top
financial advisers in France, at an excruciatingly named “circle of
champions” event.
Mr Fleming pours himself that coffee as he recalls the previous time that he
was in London, last November, for another “town hall” meeting. Wincing at
the thought of it, he describes that gathering as a “nadir in terms of our
feelings”.
“Stan O'Neal had resigned in October, John Thain had not yet been named, we
had not raised capital and I was interim in charge of the businesses as well
as risk management - a challenging time.”
Merrill Lynch stunned the markets last October when it revealed $5 billion in
writedowns from risky bets on sub-prime mortgage assets.
The revelation cost Mr O 'Neal, then the chief executive, his job and the
bank's executives, led by Mr Fleming, were forced to go cap in hand to a
collection of sovereign wealth funds to raise emergency capital.
Since then losses have ballooned to $29 billion (£14.8 billion) and the bank
has announced 4,000 job cuts.
Yet Mr Fleming is in buoyant spirits. He has come to London to rally the
troops and get them re-focused and back on track after the extreme
turbulence of the past nine months.
He explains what he told the “town hall”, which is viewed by thousands of
employees: “I said that we have come a long way and put a lot behind us.
"What I tried to emphasise is getting back to the day-to-day blocking and
tackling that everybody was thinking about last June or July before it all
went in a different direction.
“It's important for people to know that we feel like we are in a position to
be on the offensive and build the business.”
His tone is much more upbeat than most and he speaks about the credit crunch
in the past tense.
The 16-year Merrill Lynch veteran argues that the violent adjustment of huge
writedowns, followed so quickly by intensive capital-raising, have made him
confident that recovery would be quicker this time than in previous crises.
“The fact that you could write that much down and put the capital back in such
a short period of time leads me to be more optimistic than some about the
future.”
At least he can be confident of his own role. The arrival of Mr Thain raised
questions about the future of all senior executives at Merrill Lynch,
including Mr Fleming.
The new chief executive has brought in a number of staff from outside the
company but reaffirmed Mr Fleming's status when he unveiled his new line up
recently. Now, to judge by the number of references to Mr Thain, it is clear
that they work together well.
On several occasions Mr Fleming ensures that he uses Mr Thain's words when
answering questions on sensitive issues, such as the speculation that
Merrill will need to go back to Singapore, Kuwait and South Korea's
sovereign wealth funds.
“John Thain has been very clear that we have sufficient capital and don't have
a need to raise additional common equity for the foreseeable future. When we
raised this capital in January, we had a lot of demand so we went beyond
what we needed.”
Mr Fleming is in no doubt about the value of the sovereign wealth funds'
intervention - the funds injected cash more quietly than could have been
achieved by a mainstream institution, for a longer investment term than
hedge funds and with fewer demands than private equity.
“Many of them [the sovereign funds] do detailed analysis before moving, but
when they are ready to go, they are ready to go in the amounts required
given the scale of the problems. So they have been a significant positive,
which is why I believe there has been less political noise in the US than
you would have expected.”
The American is sufficiently upbeat about a recovery in the financial markets
to start talking about a revival in mergers and acquisitions, albeit in at
least six months.
“What you need is well-capitalised institutions that are able to do the deals.
As we work our way through this, we will have more and more of those and
then it will pick up considerably, no later than the middle of next year.”
Regional US banks and small financial companies will go under the hammer, and
the strong euro will fuel cross-border deals, he says.
He is more circumspect when covering the likelihood of consolidation among
Wall Street's big four banks. “There's only Goldman Sachs, Morgan Stanley,
Lehman Brothers and Merrill Lynch left, so it becomes a conversation about
culture, fit etc.”
Mr Fleming is even unruffled about the accounting rules that forced global
investment banks to cut heavily the value of their credit-related
securities, even if the underlying assets were unimpaired: “You could make
the argument that mark-to-market has forced the adjustment more quickly and
has enabled us to come out of this more quickly.
"On the other side, mark-to-market for opaque instruments that are hard
to value has limitations and we have bumped up against those in this credit
crisis. But because there are arguments on both sides, I would wait and
analyse the outcome before condemning mark-to-market accounting.”
Merrill Lynch's president cannot resist a quick sales pitch for his bank,
which he claims is well-positioned to participate in the markets' recovery.
The bank owns 49 per cent of Blackrock, the blue-chip asset manager, and
client businesses such as M&A advisory and equity underwriting are high
return-on-equity operations, he says.
The mortgage origination business is gone, but Merrill Lynch continues to
offer mortgage servicing to other loan providers. The 94-year-old American
bank will further increase its reliance on markets outside the United
States.
“Sixty per cent of our institutional revenues now come from outside the US and
that's going to be 75 per cent within the next five to seven years,” Mr
Fleming says. “In wealth management we want to triple our revenues outside
the US over the next five years.”
Merrill Lynch had a reputation for cutting and burning staff more viciously
than most rivals in the bad times. In the aftermath of September 11, the
bank shed more than 20,000 workers, then struggled to find the manpower to
capitalise on the subsequent upturn.
Mr Fleming admits: “There is a concern in our employee base, a feeling of
'here we are again', and John Thain and I are very focused on not having
that happen this time.”
He figures that the worst writedowns are over and that the price of leveraged
finance paper is picking up. It is not going at close to face-value prices,
but he says that buyers have come out that were not there in the first
quarter of this year.
It is, as he puts it, time to turn a back on the rain clouds. On that note, Mr
Fleming is almost out of the door. His parting shot - “Now I'm off to sell
some hope” - is delivered with a wry smile.
CV
1992: Joined Merrill Lynch. Previous firm: Booz Allen Hamilton (final
position, principal).
1998: managing director of global investment banking.
1999-2003: head of the US financial institutions group.
2003: chief operating officer of global investment banking and led the global
financial institutions group.
2003-07: executive vice-president, president of global markets and investment
banking, and member of the executive committee.
2007-present: president and chief operating officer of Merrill Lynch and
member of the executive management team
