Merrill Lynch: What's Up With John Thain?

I admit I was skeptical when I learned Merrill Lynch (MER) has hired John Thain to be its new CEO. Merrill, after all, is the ultimate wirehouse: its core competitive advantage is its network of 16,000 retail brokers in the firm’s Global Private Client group. GPC is Merrill’s single biggest business, by far. In 2006, even as the firm’s doomed CDO business was still going strong, GPC kicked in 35% of overall revenues. And in the third quarter, when parts of the rest of the firm were imploding, GPC revenues soared by 23%, to $3.3 billion. Not only is the unit highly profitable in its own right; its distribution heft gives Merrill a key edge in its other businesses, too, most notably in equity and fixed-income underwriting.

Merrill’s Lynch’s retail sales network isn’t just bigger than its competitors’; its brokers are more productive, as well. Pound for pound, Merrill Lynch financial advisors have more assets under custody than do the FAs at the three other big national brokers. Plus, Merrill brokers bring in more per head in revenues and pre-tax earnings as well. I don’t think it’s a stretch to say that the most important people at Merrill Lynch, by far, are its retail brokers.

And so Merrill goes out and hires Thain? What in the world does he know about the retail brokerage business? Nothing, that’s what.

As I say, I’m confused. I used to work at a wirehouse or two, and know first-hand that retail brokers can be independent-minded and highly entrepreneurial—and occasionally prickly and thin-skinned, as well. Like other individuals whose work is central to an organization, they need a certain amount of care and attention if they’re going to be optimally productive. Stan O’Neal certainly wasn’t a brokers’ guy at Merrill—and I’m not so sure John Thain will be, either. And his arrival comes at a time, by the way, when Merrill’s broker network is about the only thing keeping the ship running.

So here’s my question—to all Merrill Lynch financial advisors within the sound of my voice. What’s your take on Thain? How will his arrival affect morale among producers, including your morale? Are financial advisors (including you) more likely to stay at Merrill, or might you consider moving somewhere else? Or will his arrival have no effect at all?

Tom Brown is head of BankStocks.com.

Comments

[Mother Merr...:]

I think that everyone at Merrill is willing to give John Thain the opportunity to get us through these difficult days. The fact that he took our position instead of the bigger one at Citibank has to be worth a few points of affinity and loyalty from everyone here at Merrill. I also think that John should allow everyone at Merrill to prosper from a stock price recovery. The same way that he received Options that kick in at 20 and 40 dollars (respectively) above the current price, I think that part of our bonuses should be similarly established. Merrill will come out of this wiser but everyone knows that it will take years to get back to the top - but we will get there. I am glad that Fink is staying at Blackrock because he has turned that company into a golden, cash-generating machine that serves both its clients and Merrill (its 49% owner). I have had to rethink my retirement and my kid's college funds but I'm sticking with Merrill and I'm banking on John Thain.

2007 Nov 22 01:37 PM

[Karl Zachar:]

Don't forget that John Thain had to deal with the prickly floor traders at the NYSE. If Thain can deal with a bunch of floor traders, he can manage Merrill’s retail brokers. Thain is tough as nails and has something to prove.

2007 Nov 27 09:15 PM