New Money for Merrill Lynch

The hints have been popping up on Wall Street for months that Merrill Lynch would sell its own shares to the public. Last week the men who manage the nation's biggest brokerage firm decided that the new-issue market was finally healthy enough to do just that. They announced a plan to sell up to 4,000.000 shares, half for the firm and the remainder for its private stockholders, who are mostly officers and employees. The offering, which will probably be made in late May or early June, will represent 13% of the firm's equity. The move could well start a rush by other Wall Street firms to market some of their closely held shares to the public. Among the next likely to do so are Bache & Co., Reynolds & Co., Dean Witter & Co., Walston & Co. and F.I. du Pont, Glore Forgan.

Because most investment firms operate with private, transitory financing, an inflow of permanent capital would stabilize the business and afford more protection to investors. Wall Street is being forced toward public ownership by changing ground rules in the securities market. Increased competition caused by the shift to negotiated rates is an inducement for more firms to get into profitable big-block trading. But the firms normally have to buy these blocks before they can sell them among investors, and this requires considerable capital. In addition, the New York Stock Exchange is planning to tighten its capital requirements; instead of a 20-to-l maximum ratio of liabilities to assets, it will demand 15 to 1.

Merrill Lynch, which under Chairman Donald Regan has become the best managed house in the business, is in a strong position to issue its shares. Last year, when many other brokerage firms barely stayed afloat, the firm earned $40.7 million. Though its general brokerage business was sluggish, it made money on commodities trading and notably its Government bond trading operation. In the first quarter of this year, as stock trading surged back, Merrill Lynch earned an estimated $25 million.

The firm is expected to make $40 million by offering its shares at $20 to $24. That would amount to a conservative ratio of 15 times or 18 times last year's earnings of $1.35 a share. Nobody would be surprised if the shares jumped to a premium.

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