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Wednesday, 24 April, 2002, 20:20 GMT 21:20 UK
Merrill Lynch hires New York hero
Rudolph Giuliani (centre) tours the site of the World Trade Center on 12 September with New York Governor George Pataki and Senator Hillary Rodham Clinton.
Mr Giuliani showed rare aplomb amid the terror attacks
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David Schepp
BBC News Online's North America Business Reporter
Embattled New York investment bank Merrill Lynch has hired former New York mayor Rudolph Giuliani to defend itself against a recently launched inquiry over its research.

This latest move shows Merrill continues to act aggressively in defending itself against charges of issuing tainted advice to investors.

The reality is that Merrill is an enormously important player in New York in the right sense

Rudolph Giuliani, former New York mayor
New York state Attorney General Eliot Spitzer, who announced a formal investigation into possible conflicts of interest between Merrill's research and banking arms, levied that charge earlier this month.

Mr Giuliani, the popular former New York mayor who rose to even further prominence after his handling of the 11 September attacks, is no stranger to cases involving Wall Street.

'Important player'

In the 1980s, when he himself served as an attorney general, Mr Giuliani gained a reputation for taking on New York investment banking firms.

It is Mr Giuliani's extensive Wall Street background that has prompted Merrill to tap his negotiating and problem-solving prowess.

"The issues presented in this matter are complex and require a comprehensive understanding of the market system," Merrill said in a statement announcing its decision to hire Giuliani Partners, a management consulting firm founded by the former mayor.

Mr Giuliani hopes to convince the New York attorney general to seek solutions rather than prosecution.

"The reality is that Merrill is an enormously important player in New York in the right sense," Mr Giuliani said in an interview with the Wall Street Journal.

Long investigation

The former mayor is seeking less drastic action against Merrill in part because the bank chose to return to its headquarters in New York's Financial District after the attacks of 11 September.

New York Attorney General Eliot Spitzer
Mr Spitzer wants Merrill Lynch to change its business

Numerous other firms chose to move out of the area - some to neighbouring New Jersey.

Alhough he is no longer New York City mayor, Mr Giuliani nevertheless has continued to champion the rebuilding of the area.

Mr Spitzer is seeking to separate Merrill's investment banking and research divisions.

The New York attorney general is also pushing for Merrill to admit wrongdoing and pay a fine and restitution to investors who lost money, to the tune of $100m, based on the firm's "buy" recommendations.

Worst-case scenario

Mr Spitzer made his demands following a 10-month investigation into Merrill Lynch practices.

Investment bankers such as Merrill Lynch have long been criticised for failing to separate their research and banking departments.

Former New York Mayor Rudolph Giuliani
Giuliani: Merrill is a good corporate citizen

Analysts have said Merrill could pay a princely sum to settle the case, if Mr Spitzer gets his way.

"We estimate that the state attorney general investigation could ultimately cost Merrill Lynch as much as $2bn (1.38bn)," said Dave Trone, an analyst at rival Prudential Securities.

"A caveat is that our estimates for three of the four consequences are 'worst-case' [scenarios]," he wrote in a research note.

Long investigation

Last week, Merrill agreed to establish a website to disclose its investment-banking relationships that may reveal any possible conflicts of interests.

Mr Spitzer on Wednesday met federal officials, who expressed interest in his probe into Wall Street banks.

Speaking to reporters, Mr Spitzer said his office had been in touch with the Justice Department and the Securities and Exchange Commission, a US agency that acts on behalf of investors.

Mr Spitzer has said his office is looking into similar conflicts at other firms, and several investment banks have admitted to receiving subpoenas requesting additional information on how they conduct research.

Mr Spitzer contends Merrill Lynch disseminated misleading information when its analysts simultaneously issued buy recommendations on certain stocks to small investors while warning its investment-banking clients to steer clear of them.

See also:

19 Apr 02 | Business
Merrill pledges better behaviour
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