BOND TICKER : ‘Not to Worry,’ Merrill Assures Its Stockholders

In its annual report to shareholders, Merrill Lynch & Co. has expressed confidence that it will be absolved of any impropriety in the collapse of Orange County’s investment pool.

In the March report, Chairman and Chief Executive Officer Daniel P. Tully and President and Chief Operating Officer David H. Komansky told stockholders the firm earned $1.02 billion in profits last year.

“These accomplishments were achieved . . . in a market environment that was difficult and indeed treacherous for many. One of the most publicized casualties of 1994 was the fixed-income portfolio managed by the Treasurer of Orange County, California; the county declared bankruptcy in December following the unprecedented turbulence in the bond market.

“Subsequently, allegations were made that Merrill Lynch was responsible for the county treasurer’s investment policy. We believe the facts, when fully aired and understood, will make it clear that our company acted properly and professionally in our dealings with the Orange County Treasurer, with whom we had a 20-year relationship.”

The brokerage firm reported that the county filed a lawsuit in late January blaming it for the investment debacle and was seeking $2 billion in damages. Noting that it couldn’t predict the outcome of the lawsuit, the firm nonetheless said it didn’t expect it “to have a material adverse effect” on Merrill’s finances.

As the annual report makes clear, the firm’s pockets are deep. Through 1994, Merrill Lynch had accumulated stockholder equity of $5.8 billion.

Judge Asked to Dismiss Bondholders’ Suit

Merrill Lynch Inc. and as many as 12 of the county’s other underwriters and financial advisers who are defendants in a federal class-action lawsuit have asked U.S. District Judge Linda H. McLaughlin to dismiss the suit. In documents filed Monday, they said the lawsuit by 15 Orange County bondholders who had purchased $5,000 to $600,000 worth of county bonds is premature and overly broad.

The lawsuit charges the firms engaged in a “massive fraudulent scheme” to sell risky securities to the county and the public. The bondholders claim the strategy led to losses of as much as 50% in the value of some of the county’s debt obligations, including bonds, and to the county’s bankruptcy. It seeks an unspecified amount in damages.

But Merrill Lynch and others argue that it is still unclear how much, if any, losses bondholders will suffer. The firms also object to the suit because it blames all of the defendants for the alleged actions of individual defendants.

A hearing on the matter is scheduled for June 12.

Panel Wants Charter Vote on Privatization

A county committee has recommended that the Board of Supervisors place a county charter before the voters that would make it easier to privatize services.

The Orange County Charter Committee, formed last year to examine ways of improving county government, will deliver its report to the board in coming weeks.

Orange County is presently a “general law” county, governed by statutes approved by the Legislature. The committee suggested the county become a “charter” county, one governed by statutes approved by county voters.

Bruce Sumner, a retired judge and chairman of the commission, said changing to charter status makes sense because the Legislature seems unwilling to give the county the power it needs to privatize services as a way of digging out of the financial crisis.

The supervisors could place a charter before voters as soon as next year, Sumner said.