Supporting Teamsters union, Illinois treasurer temporarily bans Merrill Lynch.

WASHINGTON -- The Illinois state treasurer has temporarily suspended Merrill Lynch & Co. from doing business with his office based on allegations raised by the International Brotherhood of Teamsters over a labor dispute and the firm's bond business.

The action will not prevent Merrill from seeking to underwrite the state's bond offerings because Treasurer Patrick Quinn's office does not have control over debt issuance. It also will not prevent the firm from doing business with other state government offices.

Quinn's action will have "no impact on state" bond business, said Mike Colsch, the deputy director of the Illinois bureau of the budget.

But the move will prevent the Illinois treasury from continuing to invest state funds in repurchase agreements and other investments with Merrill as well as barring the firm from underwriting the state's commercial paper, said Dan Shomon, the treasurer's spokesman.

The state treasurer's office has invested $1.15 billion in various financial instruments with Merrill Lynch over the last 12 months, but a $90 million commercial offering that matured on Monday was the last investment the treasurer's office had with the firm, Shomon said.

There will be no cancellations of current notes, but the treasurer's office does not "plan to buy any new ones" underwritten by Merrill Lynch, Shomon said.

The Illinois treasurer's action comes as the teamsters have been waging a nationwide campaign over the last few months trying to pressure Merrill Lynch to force Pony Express, a courier company that is partly owned by a Merrill Lynch subsidiary, to negotiate a labor contract with its employees.

The teamsters have sent letters to 50 states and more than 100 cities publicizing investigations into Merrill Lynch's bond business and arguing that allegations over political contributions and conflicts of interest are sufficient reason for cities and states to stop doing business with Merrill until the labor dispute is resolved.

"Several widely reported incidents involving Merrill Lynch have been brought to my attention, causing me to question the suitability of your firm as a business partner for the state of Illinois," Quinn said in a letter sent to Merrill Lynch last week.

Quinn said his office would review the situation and asked Merrill Lynch to respond to the allegations before he makes a final decision on whether to permanently suspend Merrill Lynch from doing business with his office.

"Obviously, we can have no direct effect on state bond business," but the treasurer's office plans to put on a "full-court press" to try to influence the budget office and the governor to take the same action, Shomon said.

The letter was sent as Quinn, a Democrat who is running for Illinois secretary of state, seeks the endorsement of state labor unions.

Quinn has always taken pro-labor stances, Shomon said, adding that Quinn campaigned against the North American Free Trade Agreement. "Obviously, the labor concerns are a factor," Shomon said.

Merrill Lynch quickly fired off a letter yesterday challenging the allegations in Quinn's letter.

"Merrill Lynch and its affiliates do not exercise operating control over Pony Express or any company in which they hold a minority interest solely for investment purposes," said George A. Schieren, assistant to the chairman and chief executive officer of Merrill Lynch.

"As part of an orchestrated propaganda campaign to pressure Merrill Lynch to improperly interfere in this matter, the Teamsters are circulating a scurrilous document that attempts to impugn Merrill Lynch's integrity," Schieren said.

Despite the Illinois treasurer's action, the teamsters' campaign against Merrill Lynch has had only limited success.

One of the only other actions taken by a city came in June when the St. Louis city council adopted a resolution warning Merrill Lynch to "have its subsidiary, Pony Express, act in a responsible manner and observe U.S. labor laws, or forfeit its right to do business" with the city.

But the resolution was more of a warning and an indication of the mood of the city council. And it generally was nonbinding, a council staff member said. "Pony Express is the target" of the resolution, a council staff member said, not Merrill Lynch.

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