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By Root 3438 0

This firm was Merrill Lynch. It had been founded in 1914 by an intense, ambitious stockbroker named Charlie Merrill, whose notion of how to succeed on Wall Street was completely different from anyone else’s at the time. Merrill’s idea—nay, his lifelong crusade—was to sell stocks and bonds to the American middle class. For most of its history, Merrill made its money by “bringing Wall Street to Main Street,” a phrase its founder coined. Merrill Lynch was the “Thundering Herd” that was “Bullish on America.” It had brokerage offices all over the country and employed, at its peak, some sixteen thousand brokers. Merrill’s core brokerage division was a good, solid, profitable business. This was especially true after 1982, when the combination of a long bull market and legal changes that caused people to begin investing for their own retirement turned tens of millions of middle-class Americans into investors.

Merrill had a fixed-income division and an investment banking division. It had equity analysts who were highly rated by Institutional Investor, the arbiter of such things. It had businesses that ranked high on the “League Tables.” And it had been an absolute trailblazer in going public, which it did in 1971, only the second firm to do so. (The first was the much smaller Donaldson, Lufkin & Jenrette.) Yet it was never held in the same esteem as Morgan Stanley and Goldman Sachs. Goldman, especially, made so much more money—and with so many fewer people! It dealt with sexy hedge funds and counterparties rather than middle-class Americans. By the early 2000s, there was no firm suffering from a worse case of Goldman envy than Merrill Lynch.

The primary reason for this was that, in 2002, Merrill Lynch elevated its president, E. Stanley O’Neal, to be the new CEO. O’Neal had joined Merrill as a trader on the junk bond desk in 1987, when he was thirty-five. Proud, prickly, intolerant of dissent, and quick to take offense at perceived slights, O’Neal had never worked as a stockbroker, and had no particular affection for the business that had long been Merrill’s heart and soul. His burning ambition was to change Merrill. He wanted to transform its “Mother Merrill” culture, which he viewed as bloated and soft—“not adequate to the times,” he once told a colleague—and he wanted to put new emphasis on trading, especially fixed-income trading, where the fat profits lie. Under O’Neal, Merrill got into the business of lending money to private equity firms. It boosted its proprietary trading desk. It greatly expanded its commodities trading business. And it bulked up its mortgage desk. Most of all, O’Neal pushed Merrill to take more risks and bigger risks—Goldman Sachs- like risks. After all, isn’t that how one made Goldman Sachs-like profits?

Stan O’Neal was the kind of man who could bristle even at comments that were meant as praise, so it is no surprise that he never found the label “African-American CEO” to his liking. Yet his was one of the great African-American success stories in modern business. O’Neal was born in the tiny town of Wedowee, in eastern Alabama, an hour due north of Auburn. It was, says a friend, “a tough town where it was dangerous for black people to look directly at white people”; well into the 1990s one of its prominent citizens publicly crusaded against interracial marriage. O’Neal’s grandfather was a slave. His father was a poor farmer who moved his family to Atlanta when Stan was twelve. They lived in a housing project until his father established himself as an assembly line worker at a nearby General Motors plant. After high school, O’Neal was accepted into a work-study program by the General Motors Institute (now known as Kettering University). GM then hired him as a shift foreman upon his graduation, and gave him a merit scholarship when he was accepted at Harvard Business School. Once O’Neal had his MBA, General Motors put him in its treasury department and gave him a series of promotions.

Although he was clearly a comer at GM, O’Neal took a job at Merrill because he felt that it offered him more opportunity.