Merrill Lynch Announces Agreement With New York State Attorney General; Sets New Industry Standard for Policies to Protect Independence and Integrity of Research

Business Wire, May 21, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--May 21, 2002

Merrill Lynch (NYSE:MER) today announced an agreement with the New York State Attorney General under which it will enact significant new policies to further insulate securities research analysts from any real or perceived undue influence from its investment banking division.

The agreement settles all aspects of the Attorney General's inquiry pertaining to Merrill Lynch and all present and former employees. The inquiry centered on Merrill Lynch's Internet sector securities research from 1999 to 2001.

The settlement represents neither evidence nor admission of wrongdoing or liability. It provides for Merrill Lynch to make a civil payment of $48 million to New York State, and an additional $52 million to settle the matter with all other states -- with both payments contingent on acceptance of the agreement by all states.

"Because our many employees work day after day to place our clients' interests first, resolution of this matter is very important to us. Today's result will ultimately benefit all investors and the capital markets," said David H. Komansky, chairman and CEO, and Stan O'Neal, president and COO.

"Our objective from the start has been to reinforce investor confidence in the way securities analysts conduct their research and make investment recommendations. The actions we are taking will ensure that analysts are compensated only for activities intended to benefit investors. We believe this establishes a new industry standard for independence and objectivity of research," they said.

"Merrill Lynch has always had policies and procedures in place to protect the integrity of our research analysts. Our good faith negotiations with the Attorney General have resulted in further actions to strengthen the firewalls between research and investment banking, and also enhance disclosure of the multiple relationships that a company like Merrill Lynch has with clients who issue securities as well as those who invest in them," Messrs. Komansky and O'Neal said.

Among the changes Merrill Lynch will implement:

-- Whether Merrill Lynch has received or is entitled to receive from the
covered company compensation over the past 12 months from publicly announced
equity underwriting and merger and acquisition transactions. (After July 8,
Merrill Lynch will comply with the new disclosure rules adopted by the NASD and
NYSE.)

-- Specific disclosure on a percentage basis of the distribution of strong buy,
buy, neutral and reduce/sell recommendations for stocks in a number of
different categories.

As previously agreed with the Attorney General, Merrill Lynch equity research reports will contain added disclosure, including:

-- Whether Merrill Lynch has received or is entitled to receive from the
covered company compensation over the past 12 months from publicly announced
equity underwriting and merger and acquisition transactions. (After July 8,
Merrill Lynch will comply with the new disclosure rules adopted by the NASD and
NYSE.)

-- Specific disclosure on a percentage basis of the distribution of strong buy,
buy, neutral and reduce/sell recommendations for stocks in a number of
different categories.

Messrs. Komansky and O'Neal noted that the company was "pleased to put this matter behind us in a way that seriously addresses investor concerns. We believe strongly in the integrity of our research, which has served investors well for many decades. At the same time we have apologized for any unprofessional behavior.

"Looking ahead, we intend to vigorously implement these new policies and reassert our traditional position as a valued source of information for investors," they said.

Under terms of the settlement, Merrill Lynch also issued the attached statement.

David H. Komansky, chairman and CEO, Stan O'Neal, president and COO, and Thomas H. Patrick, CFO, will host a conference call today at 2 p.m. EDT to discuss this announcement. The conference call can be accessed through a live audio webcast available through the Investor Relations website at www.ir.ml.com or by dialling 888/810-0245 for domestic U.S. callers and 706/634-0180 for international callers. On-demand replay of the webcast will be available shortly thereafter at the same web address.

Merrill Lynch Statement

Merrill Lynch would like to take this opportunity, as part of the agreement reached with New York State Attorney General Eliot Spitzer and other states, to publicly apologize to our clients, shareholders and employees for the inappropriate communications brought to light by the New York State Attorney General's investigation. We sincerely regret that there were instances in which certain of our Internet sector research analysts expressed views that at certain points may have appeared inconsistent with Merrill Lynch's published recommendations.

We view this situation as a very serious matter and have informed our research Department personnel that such communications, some of which violated internal policies, failed to meet the high standards that are our tradition and will not be tolerated.