Orange County may embrace its broker from bankruptcy
A brokerage house blamed in part for Orange County’s 1994 bankruptcy may soon be back in business with the county.
With little public discussion, Merrill Lynch & Co. on Thursday joined 23 other financial services firms approved by a county finance committee for a four-year stint on its “business list” of available underwriters.
“There’s a point where you have to say, ‘OK, let’s move on,’ ” said Treasurer-Tax Collector John Moorlach, who sits on the panel.
In the bond industry, Merrill Lynch is third overall in the country and second in California. By June of this year, it had done $3.3 billion in business in bonds statewide and $17.7 billion nationally, a company spokesman said.
“We have some excellent people at Merrill Lynch now, and their money market and other products have been excellent,” Moorlach said after Thursday’s meeting.
The Board of Supervisors will vote on the committee’s recommendation Nov. 14.
It has been more than a decade since risky investments made through Merrill Lynch wrecked Orange County’s finances and forced it to declare a $1.6-billion bankruptcy, the largest municipal bankruptcy in the nation’s history.
Since then, Merrill has paid $437 million to resolve lawsuits with Orange County and other investors who lost money in the failed investment pool. It paid an additional $30 million to avoid criminal prosecution for its dealings with the county before the bankruptcy.
The county’s bankruptcy debt, meanwhile, has been whittled down to $600 million.
Since 2003, largely with Moorlach’s endorsement, the brokerage house has slowly reentered the county’s financial fold. At that time, supervisors voted to allow Moorlach to buy investment products such as certificates of deposit only after he told them he wouldn’t seek investment advice from the Wall Street firm.
But the county has been lukewarm to the idea of renewing its business ties with Merrill. Just last year, officials refused to engage the company in helping refinance the county’s bankruptcy debt, which otherwise might have earned the firm $2 million in financial fees.
Thursday’s action, if approved by the board, allows the brokerage house to provide financial advice and could close yet another historic chapter for the county.
“We’ve done business with the county for three years, and if the opportunity becomes available we would like to compete for more of the county’s business,” Merrill spokesman Bill Halldin said.
In the early 1990s, Merrill helped the county broker transactions in which the treasurer-tax collector at the time, Robert L. Citron, borrowed about $13 billion and placed it in risky investments tied to low interest rates.
When rates rose, the county lost $1.6 billion and declared bankruptcy.
At the meeting, the only criticism came from county Executive Officer Thomas Mauk: “I just want to express a concern against Merrill Lynch being recommended. I do this because this goes back to the bankruptcy days.”
But the action passed unanimously. Moorlach and Mauk, who join the panel’s deliberations, are nonvoting members.
Committee Chairman Thomas Hammond, a mortgage banker, said he understood Mauk’s point of view. “I think that there are many who feel [Merrill Lynch] did wrong,” he said. “But investment bankers never stay at the same place. They move on after five years.”
Hammond said he voted to add Merrill Lynch to the approved list because of employee turnover and the county’s comprehensive review of the company.
*
