Merrill Lynch: Cyber fatheads
From a handsome perch overlooking the Pacific Ocean, John "Launny" Steffens waved any suggestion that Merrill Lynch Inc. had lined up on the wrong side of history.
"We're interested in investors, not speculators," Steffans, Merrill's brokerage chief told me -- dismissing would-be challenges from the likes of Charles Schwab & Co. (NYSE:SCH), Ameritrade (Nasdaq:AMTD) and E-Trade (Nasdaq:EGRP) as little more than passing distractions.
"Merrill understands the Internet," said Steffens. "And we believe we can do that by adding real value."
Minutes earlier, Steffens had stood in front of a room full of Internet executives, defending his company's hard line against Web trading for the masses. Steffens had been so forceful that I returned to my office wondering whether this market maven was onto something. Perhaps the cyber frenzy had indeed blinded more sober appreciation and Internet stock trading was just a temporary comet doomed to flame out.
That was a year ago.
Textbook flip-flop
Twelve months later, Steffens and Merrill Lynch (NYSE:MER) are reversing positions -- albeit ever so grudgingly -- in what amounts to one of the more embarrassing flip-flops in recent memory.
Merrill now says it will allow an unlimited number of transactions for a minimum annual fee of $1,500. The pricing structure will correspond to an investor's assets, with fees dropping as the assets in an account grow. At the same time, Merrill will allow customers to execute individual trades for $29.95 each.
Mugging for the cameras on Tuesday, Steffens and his boss, Merrill chairman David Komansky, appeared as convincing as Death Row inmates who discover religion five minutes before midnight.
Yes, Steffens allowed, he has "sort of modified" his position over time. "What I've talked about is super-active day trading," he said. "Lots of the people who've been super-active on day trading have found maybe that's not the most successful way to grow their assets."
Merrill's clubby contempt for the democratization of stock trading and its hidebound refusal to get into the game are all the more remarkable considering the Web's well-chronicled impact on commerce.
The straw that broke the camel's back ought to have been the disclosure that online brokerages processed a record 630,000 trades in April. But considering Merrill's profound misreading of the velocity of change forced by the Internet, that conclusion extends far too much credit to management.
Seven month head start
Now consider this: The $29.95 per-trade offer doesn't even become effective until December. In other words, Merrill's giving its Internet rivals a seven-month free pass until it can work out some sore points with its nearly 15,000 stockbrokers. That's a 3-D mistake in Day-Glo colors.
The time to strike is now, not months in the future, a lesson lived out by Keith Aufhauser, my old economics professor. Aufhauser founded the eponymous discount brokerage that executed the first trade over the Internet. (He since sold the operation to the Ameritrade Holding Corp.)
Meanwhile, Merrill is still trying to make sense of the New World order. The cliché script of a bricks and mortar, old line enterprise struggling to find its footing in the new cyber economy is too tempting to resist -- especially when the other possible explanation is rank stupidity.