The president of Merrill Lynch’s global markets and investment banking division tells Suzanne Miller about Merrill’s new regime of profitability as it focuses on rebuilding business following the brutal bear market years.

When Greg Fleming walks briskly into the conference room on the eighth floor of Merrill Lynch headquarters in downtown Manhattan, he’s already running way behind schedule. During an interview about the bank’s plans for 2004 and beyond, he breaks just once to get some water for a dry cough – a hint of his relentless schedule.

A youthful 40-year-old, Mr Fleming is plain-spoken and turbo-charged. Known as a perfectionist among colleagues, he exudes the energy of someone who has not paused since he was installed as president of global markets and investment banking (that was in August – a trying juncture for the bank). When he was named as head of origination and his colleague Dow Kim was appointed co-president of the group with responsibility for debt, Arshad Zakaria had just resigned under pressure as sole head of the group. That resignation came a week after executive vice-chairman Thomas Patrick, his staunch supporter for a wider role at the company, was ousted.

Although management shake-ups are nothing new on Wall Street, the ousters unnerved investors, who worried that CEO Stan O’Neal was starting to swing the axe too hard. Mr Zakaria and Mr Patrick, after all, were well-respected veterans of the bank. And Merrill had already shed 20,000 jobs since the middle of 2000. The firm had barely caught its breath and morale was still low among its depleted ranks.

Thrust into the spotlight

The upshot is that Mr Fleming and Mr Dow were unexpectedly thrust into Wall Street’s unsparing spotlight. Since then, both men have managed to win respect among analysts and investors, who have expressed growing confidence in the fresh course that Merrill has set itself. Since August, the firm’s share price has gained about 14% and for the year, about 48%.

As for Mr Fleming, he is clearly upbeat. “We feel good about where we are now. We’ve gone through a lot of change that companies sometimes need to embrace for different cycles. Stan [O’Neal] has a new, fresh management team he’s put in place and he’s made it clear that this is the team he’s going to run with. Morale at this company is very strong.”

Profitable goals

After enduring three brutal bear market years, Merrill is re-emerging as a more focused, streamlined firm. Mr Fleming describes a new regime that is no longer pouring all its fire-power into being number one in traditional markets like M&A – the mantra of the old days – but instead on leveraging a powerful franchise and increasing profit levels. “Our goal is not necessarily to be number one in every, or even any, product – though we don’t want to be any lower than the top three-to-five in the highest margin businesses. I’m more focused on a profitable business,” he says.

His team is achieving its target “account by account”, he says, and he has worked hard to change old habits of product-pushing in favour of an integrated cross-product sell – espousing what is the new mantra at most investment banks. “There were too many people selling different products, so we’re trying to knit the traditional investment banking piece, consisting of the relationship banker and an M&A person, with one capital markets person capable of speaking about equity, debt and structured products,” he says.

Merrill is also putting more emphasis on the middle market customer – a group that Mr Fleming says had become marginalised in favour of big corporate clients. In January 2002, the firm launched a diversified commercial finance business serving middle market companies in the US. On Mr Fleming’s watch, the middle market push will deepen. “We need to extend our footprint back out into the middle market in the US and around the world. In the US, we pulled back over the last five to seven years and focused on the biggest companies, but our brand plays well to the middle market,” he says.

Eyes on the wallet

Mr Fleming is also keen to increase the bank’s “share of wallet”, which means selling a greater array of services to clients in different sectors of the market. “I felt we weren’t maximising share of wallet. Today, often the business we can do alongside traditional products, like M&A, debt and equity, includes securitisation, structured products, hybrid capital and principal capital, for example.” He says the bank’s goal is to be in the top three in share of wallet in the highest margin businesses. “We need to be in there and it needs to be done in a co-ordinated fashion,” he says.

According to Mr Fleming, Merrill has done well in the financial institutions, energy and power and real estate sectors. He says that he would like to continue to invest in these sectors as well as in other areas such as media, and the general industrials business.

On a regional basis, he is targeting countries like China, France and Germany. He believes there is ample opportunity in Germany to work with banks to shed distressed assets from their books. This might entail putting such assets in a vehicle in which Merrill would invest – which it has done successfully in Japan – or acting as an intermediary and helping to package and sell the assets to another party.

On Merrill’s home-turf, Mr Fleming is charting other expansion plans, albeit cautiously. For instance, the bank has once again focused on building its leveraged/high yield finance capabilities in the US – an area of business that did stratospherically well in the past year. Merrill, however, had made deep cuts to that part of its business during the past few years and missed out on much of this opportunity. “It’s been a great year for leveraged finance and we were number 12 in the league table. There’s no reason for that,” says Mr Fleming.

Ten years ago, Merrill Lynch ruled the high yield market with a prodigious ease. Now, after a series of cuts, it is starting to hire again, though cautiously, with the aim of regaining its relinquished edge. Recently it hired Todd Kaplan, who was chief operating officer of Merrill’s GMI group, to head an integrated global leveraged finance group that includes origination, sales and trading.

M&A intentions

Merrill is also intent on regaining its former strength in M&A advisory, where it has slipped from the inner circle. For the year, it ranked number five as global M&A adviser, coming in behind JP Morgan, Citigroup, Morgan Stanley and Goldman Sachs. For the fourth quarter, it ranked number four with a 16% market share, according to Thomson Financial.

Analysts have blamed slippage on the firm’s aggressive cost-cutting in the capital markets businesses and say they will be watching closely to see how the firm comports itself this year as the markets brighten. Last year came the first flicker of a deal revival, with worldwide M&A volume totalling $1300bn compared with $1200bn in 2002. That may be a measly increase but global M&A fell 29% between 2001 and 2002 and a crushing 50% in the previous year.

As markets revive, so too will performance pressures, although there have been encouraging signs that Merrill is back in the fray. In November, for instance, it co-advised with Goldman on St. Paul Companies’ announced merger with Travelers Property Casualty – a deal valued at about $16bn that is expected to close in the first half of this year.

Progress in fixed income

Meanwhile, Merrill has made headway in fixed income under Dow Kim. “Dow’s taken a lead on building out a more diversified fixed income business,” says Mr Fleming. “Our rates, credit and securitisation businesses have all done well and Dow has made a conscious decision to build up foreign exchange.” For the year, Merrill ranked number three as bookrunner on global debt, equity and equity-related issues with $380bn in underwritings, according to Thomson – a 12% increase from the previous year.

Merrill is rebuilding in other parts of its business, too. In November, it announced plans to hire 650 brokers to provide financial advice as the markets revive. It currently has about 13,500 financial advisers worldwide and the retail business is an increasingly important part of its institutional business.

Mr Fleming admits that it is good to be back on the upside again. “As the markets reflate, given the discipline with which we managed our business, we are well positioned with leverage on the upside. Given the stock performance of the last year and the profits we have been generating, it is clear that Stan O’Neal has done a lot of things right.”

Career history Mr Fleming graduated from Colgate University in 1985, summa cum laude with a BA in economics, and obtained a Juris Doctor degree from Yale Law School in 1988.

2003: Appointed president of Merrill Lynch’s Global Markets and Investment Banking division. 2002: Promoted to chief operating officer of Global Markets and Investment Banking. 2001: Promoted to co-head of Merrill Lynch’s Global Financial Institutions Group. 1999: Promoted to head of Merrill Lynch’s US Financial Institutions Group. 1992: Joined Merrill Lynch.

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