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ORANGE COUNTY PERSPECTIVE

Go Slow on Merrill Lynch Ties

July 07, 2002

It's too soon for Orange County to be embracing a "business as usual" relationship with Merrill Lynch & Co., the giant brokerage firm that played a crucial role in the county's 1994 bankruptcy. Elected officials and taxpayers shouldn't forget the county lost $1.7 billion on ill-advised investments during Merrill Lynch's watch.

County services continue to suffer because the county is making $93 million in annual interest payments on $1 billion in bonds sold in the wake of the nation's largest municipal bankruptcy.

Merrill Lynch's share of the huge California municipal bond underwriting market plunged to 6.5% from 18.4% in the three years after the bankruptcy filing. So the firm clearly sees the county's stamp of approval as a way to polish its image among potential municipal customers.

Merrill Lynch has resumed doing limited business with some local government agencies, including the Santa Ana Unified School District and the Irvine Ranch Water District.

County Treasurer-Tax Collector John M. Moorlach, a fierce Merrill Lynch critic at the time of the bankruptcy, says he's willing to give the giant firm some of the county's business. Others clearly aren't ready to bury the hatchet.

Supervisor Todd Spitzer, who also is Orange County Transportation Authority chairman, says he'll forgive and forget after Merrill Lynch reimburses the county for bankruptcy-related losses.

Elected officials in the county shouldn't necessarily keep the financial-services giant on the sidelines if it can prove beyond a doubt that its service and rates are competitive. The Irvine Ranch Water District, which sued Merrill Lynch and collected $18 million, has adopted what seems to be a sensible approach. The district contracted with Merrill Lynch to handle two short-term debt deals. Based upon its successful work, the firm now is eligible to compete for a $50-million bond issue.

In an unrelated development, Merrill Lynch recently agreed to pay $100 million to settle charges that its stock analysts served up tainted advice to investors during the dot-com boom. Merrill Lynch has been spending freely on advertising that's designed to polish its image with investors. The glitzy advertisements promise the firm will work "face to face, eye to eye, to help realize your financial goals."

Merrill Lynch's eyes were closed to everything but potential profits during the days leading up to the county's painful bankruptcy. Elected officials owe it to taxpayers to keep their eyes open while considering whether Merrill Lynch should be invited to compete for business involving taxpayers' funds.

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