Why Is Wall Street Afraid Of Michael Bloomberg?Monica Roman
Back in the 1970s, Michael Bloomberg was flying high. At age 32, he was running the equity trading desk at Salomon Brothers Inc. and raking in big bucks. But his penchant for speaking his mind led to frequent clashes with management. "He thought he knew more than the people he was working for," says Morris W. Offit, chairman of Offitbank and a former Salomon partner. When Bloomberg was fired in 1981, he seemed like just another trader who had crashed and burned.
Wrong. A decade later, he is flying high again--and stirring up trouble. Bloomberg runs and is majority owner of one of the nation's fastest-growing vendors of financial information. Virtually invisible just a few years ago, Bloomberg Financial Markets, which is 30% owned by Merrill Lynch & Co., had estimated sales of $140 million last year. Soon, it may challenge industry giants Reuters Holdings PLC and Dow Jones & Co., owner of Telerate Inc. Bloomberg's worldwide network of 11,000 terminals is small compared with Reuters' 205,000 screens and Telerate's 90,000. But both companies regard Bloomberg seriously enough that they have taken what might be construed as retaliatory actions against him.
Bloomberg already has a commanding position in fixed-income information. "He dominates the market," says Ted Kellogg, a portfolio manager at Keystone Investment Management in Boston. Although other vendors, such as Telerate, offer bond prices, Bloomberg was the first to add sophisticated analytical tools allowing managers to evaluate their portfolios under different interest rate and risk scenarios.
Yet Bloomberg's main edge is the vast scope of the data he puts at money managers' fingertips, including current prices from 18 Treasury dealers, 75 corporate bond dealers, and many other market makers; price histories on thousands of securities; and news, research, and statistics on 15,000 companies gleaned from hundreds of sources.
'NOBODY COMES CLOSE.' These features are invaluable in the bond market because it lacks any central pricing or quotation system. "Nobody comes close to Bloomberg in terms of the breadth of information," says Nancy Freund-Heller, director of private placements at TIAA/CREF, which has been replacing its Telerate screens with Bloomberg terminals.
Reuters and Dow Jones aren't the only ones that have reason to be worried about Bloomberg. Many Wall Street firms are also concerned. Bloomberg's aggressive marketing of terminals to institutional investors is making them less dependent on securities houses, which have long controlled fixed-income market data. That has prompted six major firms, including Salomon, to form an electronic joint venture known as EJV Partners, which plans to offer a competing service.
But Bloomberg wants to be much more than a niche player in financial information, which Waters Information Services estimates to be a $4.6 billion business. He has launched an equities service and has beefed up coverage in other markets, such as mortgage-backed securities and energy. His boldest venture yet is a 60-person financial-newsoperation whose reports recently began appearing in The New York Times.
Bloomberg is barging into a market that has claimed more than its share of victims. Such companies as McGraw-Hill Inc., publisher of BUSINESS WEEK, have abandoned or scaled back forays into electronically distributed news and market data. Telerate and Quotron, owned by Citicorp, have proved disappointments for their owners. Observes Mike Holland, managing director of Salomon Asset Management: "Large corporations are strewn along the road to where Bloomberg has already arrived."
'A BETTER MOUSETRAP.' A big reason for Bloomberg's success is his acute sense of the market--the product of years as a trader. Most of his competitors have news, software, and marketing backgrounds. "Too many companies try to push their product on the market without bothering to find out what the customer needs," says Byron Klapper, managing director of Fitch Investors Service, a bond-rating company. "Bloomberg built a better mousetrap and did it from the customer's perspective."
Sitting behind a sleek desk overlooking Park Avenue, Bloomberg doesn't look like a troublemaker. His conservative pinstripe suit and wingtip shoes are standard issue for Wall Street executives. His often raw aggressiveness is more apparent when he struts around the offices like a head trader, snacking from a bowl of unbuttered popcorn and bantering with employees. Bloomberg delights in outrageous, off-the-record pronouncements. In contrast with his company's modest size, Bloomberg's aspirations might strike some as grandiose. He will allow himself to be quoted as saying he wants "to provide issuers, intermediaries, and institutional investors with everything they need to run their businesses."
Not if his competitors can help it. Reuters is getting ready to launch what industry wags have dubbed the "Bloomberg-killer"--a competing fixed-income analysis package. Dow Jones, which has been broadcasting its widely followed news service on Bloomberg terminals, will pull it in August. Dow Jones spokesperson Roger May says that it is company policy not to distribute the service through a news competitor.
Meanwhile, EJV is building a network to deliver fixed-income research to institutional investors. Chief Executive Bruce Peterson says EJV aims to improve the quality of data received by its customers. But others claim that EJV's real mission is to put Bloomberg out of business. "Firms such as Salomon and Goldman Sachs are afraid they're going to lose their relationship with their customers," says Tom Jordan, president of Jordan & Jordan, a New York-based financial-information consultant. However, Steve Silberstein, a financial-technology consultant based in Port Washington, N. Y., says EJV "could pose a threat to Bloomberg because of the tremendous resources of its owners in terms of information, analytics, and capital." Bloomberg avers that he's not concerned: "EJV is playing catch-up."
MISSED CHANCE. It's ironic that the Salomons and Goldmans of the world are scrambling to beat Bloomberg since they had the chance to get in on the ground floor. When Bloomberg went knocking on the doors of all the major Wall Street firms to sell a stake in his fixed-income system, only Merrill Lynch was willing to listen. The system was initially designed for Merrill traders and used only Merrill price data. But later, it was greatly expanded to include prices from numerous other dealers and was offered to other firms and their customers.
Even admirers of Bloomberg's market data are skeptical of his efforts to go head-to-head with Dow Jones and Reuters in offering financial news. "To be a real factor in news requires many years and many dollars," says Eric Philo, an analyst who covers the financial-news-and-information industry for Goldman, Sachs & Co. Bloomberg says the barriers to entering the news business have been exaggerated and that his news operation currently costs less than $5 million annually.
Another problem is Merrill's stake. Competitors question whether Bloomberg can cover markets objectively when a brokerage firm is a minority owner. His news chief, Matthew Winkler, a former Wall Street Journal reporter, says Merrill's stake didn't prevent him from running a negative story about the brokerage firm shortly after Bloomberg Business News went live in June, 1990. "Merrill didn't like the story, but they couldn't argue with the sourcing," says Winkler. "When Mike found out about it, all he said was: 'No guts, no glory.' "
Bloomberg has already shown plenty of guts. Glory of the sort he craves may take a little longer.