NEW YORK -- Merrill Lynch & Co., already the nation's largest securities firm, is pulling away from the Wall Street pack as it heads to the turn of the century.
Criticized 10 years ago as bloated and poorly managed, Merrill now dominates Wall Street. The next-largest securities firm, Smith Barney Inc., invests about $58 billion for its customers -- little more than a third of the $167 billion that Merrill invests for its clients.
Merrill Chairman and Chief Executive Daniel Tully is confident his firm will remain the industry leader -- so confident that he cites "arrogance and complacency," not other financial-services firms, as its biggest threats. "We don't wake up in the morning thinking about Smith Barney," Mr. Tully said.
If Mr. Tully has his way before he retires in three years, Merrill will lengthen its lead. The firm's equity base -- essential for expansion, borrowing and trading in worldwide markets -- probably will double by the end of the decade from its current $5.7 billion, because Merrill is exceeding its goals of returning 15 percent on its equity each year.
Mr. Tully predicts the firm will control $1 trillion of total customer // assets by the year 2000, almost double the $548 billion it now holds.
Mr. Tully's efforts have paid off for investors. Since Mr. Tully took over in May 1992, Merrill's stock has risen about 60 percent, compared with a 40 percent increase in the Standard & Poor's index group that includes some of Merrill's competitors. It split its stock 2-for-1 a year ago, after it rose above $100 a share, and raised the dividend that it pays on its common stock three times. Merrill is a passive minority investor in Bloomberg L.P., the parent of Bloomberg Business News.
And the firm probably will keep it up, analysts said. "With their strong franchise they will continue to do well," analyst Dean Eberling of Prudential Securities Inc. said. "We are in a world where you have to add value. In underwriting, it means that because Merrill has access to large markets and knows the pricing, it can go to China and raise money in the U.S. for a Chinese oil company."
To be sure, when Mr. Tully became chief executive officer two-and-a-half years ago, he and Merrill benefited from the biggest bull market in bonds in a generation. Not until this year has Mr. Tully had to prove himself capable of making money in a bear market.
