4th and Goal

by Monte Burke

  These day traders—who made multiple trades every day—were gold to Ameritrade, which collected money on each transaction. With hundreds of online brokers essentially offering the same service, scale became key. Ameritrade spent lavishly to attract new customers. By 2000 the company’s marketing budget was $200 million, a whopping one-third of the company’s revenues. That imbalance was just one sign that things were getting out of hand.

  Somewhere around 2000, investors began to realize that money plowed into Internet companies and tech firms with no real business plans and no real revenues was perhaps not a great idea. The spigot ran dry. The stock market sank. Though it remained the prevailing topic in American households, it was now a conversation that was all doom and gloom. Almost overnight, day trading lost its appeal, looking more like folly than the future.

  All of the major online discount brokers got hammered, but none quite so forcefully as Ameritrade. The company lost $14 million in 2000, despite, or maybe because of, its huge marketing splurge. That was nothing compared to what was to come. Ameritrade lost another $91 million the following year. It suffered the double whammy of having customers who were trading less yet were becoming more expensive to attract and retain.

  Ricketts’s twenty-five-year-old company, which had risen so fast and spectacularly during the dot-com boom, looked like it might go out of business, a crisp cinder falling back down to earth after the big fireworks show. In order to save Ameritrade, Ricketts realized he had to look outside the company. Even the most successful insurgents rarely make for good leaders after the revolution.

  What he needed was a motivational leader who had a strong background in traditional finance. He needed that someone fast. Ricketts looked for salvation from among the ranks of one of those old-school Wall Street firms that he had been trying to destroy.

  By 2001 Joe Moglia was maybe one rung below Merrill’s top level, and just beginning his seventeenth year there. But despite his accomplishments and his proximity to the top, Joe wasn’t going to be Merrill’s CEO anytime soon. Entrenched above him was a group of executives with twenty-plus years at the firm, guys like Herbert Allison, Tom Davis, Win Smith, Jeffrey Peek, and Stanley O’Neal (who would in fact become its CEO in 2003). “I don’t think Joe was on the CEO track,” says Roger Vasey. “Joe had a very strong following at Merrill, but the board was too obsessed with moving Stan into the [CEO] role.”

  And anyway, Joe’s philosophy may not have fit in with Merrill’s gradual shift away from a teamwork-oriented firm to one that rewarded individual glory and increasing greed. “Joe had integrity and he treated people well. He was a team guy,” says Mike Quinn. “He wouldn’t have thrived or enjoyed himself in the regime that took over under Stan O’Neal.”

  Still, Joe maintained excellent relationships with upper management, including O’Neal. By 2001 it looked like Joe could have worked at Merrill, or at a comparably high position at another financial firm, and made millions a year for the rest of his working life. Many people would have been very happy with that career.

  Joe wasn’t.

  “The bottom line was that I always wanted to be the leader,” he says. And that desire didn’t look like it would be fulfilled at Merrill anytime soon.

  After a series of three interviews with Ricketts, Joe was offered the CEO job at Ameritrade in 2001. Joe realized that the company was in serious trouble. But he sold Ricketts a vision: the company could be not only the world’s best online broker, it could become a place that long-term investors could call home.

  Leaving Merrill, however, wasn’t a slam-dunk decision. First there was the family component. Joe and Amy had been married for six years at the time. They lived in Chatham, New Jersey, with Amy’s two sons, John (15) and Jeff (12). Amy liked the East Coast. Having seen the cost of what he’d put his family through during his coaching days, Joe was a bit gun-shy about how the move would affect his marriage, and his stepsons. Amy had her reservations, too. “At the time Joe was getting offers from everywhere,” she says. “They were raining down. I just didn’t think he was serious at first about Ameritrade. But when he told me that he was starting to get serious, I asked, sort of in an offhand manner, where it was located. He said ‘Omaha.’ I said, ‘Um, where?’”

  But Amy knew that this was Joe’s shot—Ameritrade was the only CEO job he’d been offered. “It took a little while to adjust to the idea, then I thought, Well, if we go there, what the hell. This will be an adventure.”

  Then there was the career side of the equation. Executives that far up the food chain at Merrill rarely, if ever, left for such risky propositions. “Make no mistake, leaving Merrill was a huge decision,” says Waterhouse’s Frank Petrilli. “Ameritrade was on the balls of its ass. No one thought they would make it.”

  The fact that Joe was even considering the challenging move was no surprise to those who knew him well. “Joe loves to put himself in situations where he has to pull a rabbit out of his hat,” says his brother Johnny.

  Some of Joe’s coworkers were supportive. “Joe knew there was a huge risk in giving up the certainty he had at Merrill. But he was just so damn enthusiastic about the Ameritrade thing. I encouraged him, though he really didn’t need it,” says James Gorman, who ran the retail sales force at Merrill then.

  Others were less sanguine. Dave Komansky, then the Merrill CEO (preceding O’Neal), was shocked. “I didn’t like their business model and I couldn’t fathom living in Nebraska. I mean, Omaha? I thought he was crazy.” But Komansky believed Joe had handled the Ameritrade job offer in a totally honorable manner. “He was very upfront about it right away. Most guys will sneak around then surprise you with something like that,” he says. As a reward, Komansky decided to give Joe all of his restricted stock in Merrill (worth millions), an unusual parting gift for an executive who was leaving for another firm. “I appreciated what he’d done here and how he handled the Ameritrade thing, so I arranged that he would get every single penny.”

  But before Joe made his final decision, he made a last-minute call to Randy MacDonald, who, as Ameritrade’s chief financial officer, knew the company’s books better than anyone. Joe had one more question: is this company going out of business?

  “I don’t think so,” answered MacDonald. He didn’t sound entirely convincing.

  Joe took the job anyway.

  Joe arranged for his salary to be based 85 percent in Ameritrade stock. He would sink or swim with the fortunes of the company he was now charged with running.

  He moved to Omaha in April 2001, a few months before Amy and her kids would arrive at the end of the school year. One of his first acts as the CEO was painful: he laid off 40 percent of Ameritrade’s employees, most of whom worked in divisions, like the overseas and real estate offices, that Joe didn’t consider as part of the core business. “We had to do it merely to survive,” says Joe. “But no one likes to come in and be the hatchet man.” He also shut down the geyser that had been the marketing budget, cutting the spending down to one-fifth of its total the year before.

  With expenses cut, Joe went on the offensive. The company’s old model—offer the lowest price on trades, then market the hell out of it—worked well in a bull market, but was a loser in a serious bear market. Joe decided to focus on what he saw as the company’s core strength—its transaction model. “We had an efficient engine already in place. We just needed to all be concentrating on that one thing that we did well,” he says. “The question was how to get more business running through it.” The answer was to get more accounts by buying up other companies.

  Joe says the Ameritrade job appealed to him for four reasons: he liked both the brand and the technology that Ricketts had acquired for making customer transactions; bad as they seemed, he thought the financials were still strong enough to give him access to money to buy up some of the smaller online brokers; and no other big competitor in the space had embarked on such a consolidation strategy.

  “I guess two out of four ain’t bad,” says Joe in retr
ospect. The brand was solid and the transaction technology did indeed turn out to be great, one of the best and most efficient in the industry. But the financials of the company were worse than Joe had believed. By the time Joe took over in the spring of 2001, the company was on track to lose $100 million in that fiscal year. There was no cash on hand, and Joe didn’t want to take on more debt at crippling lending rates. Any acquisitions would have to be financed with Ameritrade stock, which put the risk solely on the shoulders of the company’s shareholders. To top it off, competitors like Waterhouse and E-Trade had also begun making noises about buying up some smaller companies. Suddenly, Joe’s consolidation plan had some competition.

  The online brokerage industry by early 2001 was littered with failing companies that were too wounded by the dot-com bust to carry on by themselves. All of them could be had for cheap. Some of them even had good accounts. The key for Joe and his team at Ameritrade was to find the best one, buy it, then add its accounts to Ameritrade as seamlessly as possible. This was easier said than done.

  At the time Ameritrade had no cachet with Wall Street analysts. The same folks who’d been touting Ameritrade stock a year before wouldn’t even deign to talk about it now. As its new CEO, Joe first sought to restore Ameritrade’s credibility. He went to Wall Street and met with a group of analysts who covered the online discount brokerage industry. Part of Joe’s challenge was to convince those outside of the company—and especially those analysts whose job it was to cover Ameritrade and predict its future—that Ameritrade would not fail. It helped that Joe was a natural storyteller. He told them that once he got Ameritrade’s act together—and he was sure he would—he would start to consolidate the industry. “He was really different from most CEOs,” says Richard Repetto, a stock analyst at Sandler O’Neil. “He had this friendly manner about him. Still, what he was talking about seemed like a stretch at the time. It was a long shot.”

  But Joe went even further than that, and told them about his plans for the future, for turning Ameritrade into a place where investors would bring their cash and manage it for the long term. “Then they thought I was out of my mind,” Joe says.

  In late July 2001 Joe made his first move. Concerned as he was about the risk to the company’s shareholders, he decided it was in their best interest to expand, and with $154 million of his company’s stock, he bought National Discount Brokers. The deal added 316,000 accounts to Ameritrade’s stable of 1.5 million. Joe got NDB for dimes on the dollar. Just nine months earlier, Deutsche Bank had purchased 85 percent of NDB for $850 million. Still, $154 million was a lot for Ameritrade to spend, especially since the company was still losing money. And the real work would be in the integration. They had to hang on to those NDB accounts. “If we don’t get the integration right, right in the middle of a recession, we lose our marketplace and we go out of business,” says Joe. He put together a team to work on the integration and told them they had only one job: make it work.

  On September 6, 2001, Ameritrade closed the NDB deal. Though the integration had already started and was moving in the right direction, Joe felt he had to keep pressing and keep looking for more acquisition targets. NDB gave him a few months of breathing room. But he needed to make a bigger splash with his next purchase.

  Cornhuskers football is a religion in the state of Nebraska, and as a new arrival, Joe had to pay his respects at the state’s high church: Memorial Stadium in Lincoln. To turn down an invitation to a Nebraska football game would have been viewed as aberrant behavior at best, and flat-out rude at worst—especially for a former coach.

  On September 8, 2001, some Ameritrade colleagues insisted that Joe accompany them to the Notre Dame–Nebraska game in Lincoln. He had no idea how he would feel. It was literally the first football game, other than some of Kevin’s high school games, that he had been to in person since that long-ago game back at Dartmouth in 1984. Joe had successfully blocked out football from his consciousness. “It was a survival thing, really,” he says. “I needed to maintain full concentration on my business career. I was a little scared of what even seeing football would do to me, what emotions it would bring up.”

  Joe remembers walking into Memorial Stadium that afternoon, thrilling to the energy of what was an ocean of red-clad fans. That old excitement hit him. His stomach did flip-flops, like it always did just before game time. As the game started, Joe began to feel a pang, a yearning for the road not taken. “I remember looking down at the field at [Frank] Solich [then the Nebraska coach] and thinking, That could be me there on that sideline,” he says.

  But he had chosen another path. And in his latest move, he had committed himself to Ameritrade, which would die a quick death if he didn’t quickly turn things around. Maybe this wasn’t the path his heart most desired, but it was the one he was on for now, and he knew he owed it to his new company to dive in with everything he had.

  Watching the game turned out to be a painful experience for Joe, just as it had been in 1984. He squirmed in his seat. He was ready to leave after the first quarter and to start trying to forget football again. He managed to make it through the game, but he vowed to do his best to avoid having to attend another one. And sure enough, he would be more or less successful in doing so for the duration of his time at Ameritrade.

  The game itself turned out to be an easy 27–10 win for Nebraska. Eric Crouch, in what would be his Heisman Trophy–​winning season, had a relatively quiet game, passing for one touchdown. There was no way of knowing then that eight years later, Joe would become a member of the Cornhuskers coaching staff working as an unpaid assistant. And that exactly ten years later, he would be on the sidelines in a different stadium sixty miles to the northeast, a head coach again, running another Nebraska team, which would be led by none other than…Eric Crouch.

  Three days after Joe attended the Nebraska game, the world came to a complete halt. When Joe flipped on his television that morning, he saw the Twin Towers, once described by Ian Frazier as the city’s “exclamation points,” in flames. New York City was his hometown. He’d grown up there and still owned that small studio apartment in Battery Park City just a few blocks away from ground zero. And Kara and Kevin were still working at Merrill Lynch in the World Financial Center, across which, on sunny mornings, the towers cast their long shadows.

  As the towers burned, Joe received a phone call from Kim, who was then living in Brooklyn. She told him that she’d spoken to Kara and Kevin and that they were both okay, and that the Merrill Lynch building was being evacuated. Joe worried about the many people he knew who worked in the towers, but was relieved that his kids seemed safe. Meanwhile, Ameritrade was in emergency mode. Joe spent the early morning running around the offices, ordering associates to reach out to their clients to assure them that their money was safe.

  Then Joe heard muffled cries coming from Ameritrade’s main floor, where people had gathered around the television. When he went to see what had happened, he discovered that somehow, the south tower had collapsed. Half an hour later, the north tower went down, too.

  Joe’s secretary, Peggy Henderson, told him that Kim was on the line again. Joe raced to his office to pick up the call. Kim told him that Kara was safe in New Jersey. Then she paused for a moment that seemed to go on forever. “Dad, have you heard from Kevin?” she asked. The last time anyone had seen him, he was headed to the towers to help out. And now they were both down.

  Joe sat in his office alone, stunned. He and Kim continually tried Kevin’s cell phone but got no answer. It hit him that there was a real chance that he had lost his son. “I felt helpless. I was in Omaha. There was nothing I could do,” Joe says.

  One thing gave him solace. Thanks to that moment in his childhood when he had realized how important it was to tell his mother how much he loved her, he had made sure that his children knew how he felt about them. So as he sat in his Ameritrade office in the hours after the towers fell, trying his best to push his worry about Kevin back into some box in his head where it coul
d be contained, it comforted him to remember that he had made his feelings known to his son: “I had told Kevin everything I needed to tell him. Kevin knew that I loved him.”

  At 5:00 p.m., six long hours since learning that Kevin was missing, Joe’s cell phone rang. He was sitting by himself at his desk in his Ameritrade office. “Dad, it’s Kevin. I’m fine.” He had been near the towers, but when he saw he couldn’t help, he’d walked home. His cell phone, like many New Yorkers’ phones that day, didn’t work.

  Tears streamed instantly down Joe’s face. “I love you, Kevin.”

  “I know. I love you, too, Dad.”

  The rush of relief Joe felt when he heard Kevin’s voice took everything out of him. But he would have little time to recharge. He still had to figure out how to save his company.

  Ameritrade was in dire trouble. At the height of the tech boom in 1999 and even into 2000, the company was netting good money on trades, an average of $1 per every $10 traded. But in 2001, due to the drop in trade volume and then to the aftereffects of 9/11 on the stock market, Ameritrade began to lose 80 cents for every $10 traded. This was alarming news, especially given the fact that the union with NDB had been nearly flawless—a stunning 98 percent of NDB customers stayed on with Ameritrade after the merger.

  Joe needed to stick to his game plan and needed to buy another company. And this one needed to be big.