Collision at the Corner of Wall Street and Main Street:

1
Collision at the Corner of Wall Street and Main
Street

• Will the New Rules Make a Difference?

James P. Gorman President, Global Private
Client Merrill Lynch Co., Inc. Spring 2004
2
Three Pillars of American Leadership
Flow of Human Capital
Flow of Intellectual Capital
Flow of Financial Capital
3
The Tech Bubble Bursts
March 2000 Peak
8 trillion in value destruction
October 2002 Trough
Source Merrill Lynch Economics
4
Panics on Wall Street Nothing New
1792 1865-69 1893-95 1914 1987
1837 1873 1901 1929 1998
1857 1884 1907 1962 2000
Source Panic on Wall Street Robert Sobel, 1968
5
NYSE Born of Scandal in 1792
The Buttonwood Agreement May 17, 1792
When the New York legislature was considering
stringent regulation of financial brokering as an
aftermath to financial crisis
Source Street of Dreams, Boulevard of Broken
Hearts Wall Streets first century Howard M.
Wachtel, 2003
6
1929 Crash Spurs Reform

• SEC Created
• Federal Deposit Insurance
• Glass-Steagall Act
• separates commercial and investment banking
• repealed 1999

7
America Becomes a Nation of Investors
2003
2003
1975
1982
15.3 trillion
1.7 trillion
2 trillion
100 billion
Total Value of HH assets
Capital Raised for US Businesses
2003
75 of all equity investors are Baby Boomers
(1946-64) and Gen-Xers (1965 and after)
1980
84 million
30 million
US Individual investors in Equity Markets
Source Federal Reserve and Securities Industry
Association Statistics
8
Americans Have Higher Participation In The Markets
Securities as a percent of personal financial
assets 2002
Source McKinsey 2002 US PFS model
9
Financial Services Has Grown As A Portion Of The
Total Economy
As of GDP
2002 20.9
1990 17.4
1980 14.9
1970 13.7
Source US Dept of Commerce, Bureau of Economic
Analysis
10
New Decade, New Scandals

• Dot-com Mania
• Accounting Scandals Enron, Worldcom, Parmalat
• Research independence
• Mutual funds

11
Congress Mandates Positive Reform
Sarbanes-Oxley Act of 2002

• Independent Audit Committees and Auditors
• CEO/CFO certification of financial reports
• GAAP accounting
• Enhanced financial reporting
• Stiffer penalties

12
The New Research Paradigm

• Analysts paid for the job they do for investors
• Preserves legitimate role in origination
• Open Architecture for Research
• The Merrill Lynch approach create value for
  clients

13
Investors Have Responsibilities, Too
Plaintiffs were among the high-risk speculators
who, knowing full well or being properly
chargeable with appreciation of the unjustifiable
risks they were undertaking in the extremely
volatile and highly untested stocks at issue, now
hope to twist the federal securities laws into a
scheme of cost-free speculators insurance.
Honorable Milton Pollack, Senior United States
District Judge October 31, 2003
14
Investors Performance Expectations

• Investors have more realistic performance
• expectations compared with the past

Source Securities Industry Association 2003
Investor Survey
15
The US Banking Industry Is Less Concentrated
16
Things you may not know about Merrill Lynch

• Top 10 retail bank, 65 billion in U.S. deposits
• Top 15 jumbo mortgage originator, 23 billion
• Top 10 401K and IRA provider
• 1 US private bank by assets (Barrons)

• Relationship with est. 800,000 small business
  owners
• 1 managed account assets (Cerulli Edge)
• Leading Visa issuer in average charges per
  account
• 380 billion in assets in 10 million plus
  client relationships

17
We Have the Total at Merrill Lynch
Retirement
Advice Planning
Credit Lending
Beyond Banking
Estate Planning Services
Investments
WE SEE YOUR FINANCIAL LIFE IN TOTALSM
Business Financial Services
Tracking Progress
18
Giving Advice Role of the Advisor

• Professional certifications
• 5-year training program
• Advisor teams
• Specialists in retirement, insurance, trust and
  estate planning
• World-class technology

19
The Bottom Line
Financial markets that are

• Stronger
• More transparent
• Fairer

Than ever before!
20
Five Predictions for the Future

• 1. Continued consolidation in financial services
• 2. China and India surpass U.S. in stock market
  investors
• 3. Tort Reform becomes a top domestic priority
• 4. Out-sourcing becomes a non-issue
• 5. CEO pay continues to rise