Merrill Lynch still only a qualified success following acquisition by Bank of America

Source:Global Times Published: 2018/9/25 19:03:40

Buying Merrill Lynch has been a qualified success for Bank of America (BOA). The $310 billion mega-lender bought the Thundering Herd essentially over a weekend in the depths of the 2008 crisis for $50 billion. Merrill's retail brokerage has worked out well. But the merger and acquisition (M&A) and equity franchises have faded under the BOA brand.

BOA's 17,000 or so financial advisers - most a legacy of the Merrill deal - have become a jewel in the crown for the bank run by Brian Moynihan. The pre-tax margin on the brokerage unit in the first half of this year, for example, was a whopping 28 percent. How the investment bank has performed is less clear cut. BOA ranks fifth so far this year in each of the league tables for selling new shares and advising companies on dealmaking, according to Thomson Reuters data. But combine the bank and the then independent Merrill back in 2007, and they would together have reached the top of the equity capital markets ranking and the fourth spot in M&A.

In today's context, BOA's equity capital market bankers brought in about $600 million in revenue in the first half of this year, three-fifths of what top dog Morgan Stanley managed. Its M&A advisory top line was similar, coming in at less than half what Goldman Sachs raked in.

That doesn't make BOA's former Merrill businesses a flop - they're in the same ballpark as Citigroup's. Both banks have taken a realistic approach since the crisis. Christian Meissner, the BOA investment-banking chief who is stepping down after eight years, got his firm to focus on profitability over size, slashing the division's client list to 5,000 from 12,000. Moynihan's shop is routinely a top-three player in debt underwriting and lending, often putting it among the industry's best fee-earners. The overall division, which includes transaction services, earned an enviable 20 percent annualized return on allocated capital in the six months to June.

The fairly modest revenue figures for equity sales and M&A in recent years, though, help to discredit the pre-crisis theory that commercial banks with huge balance sheets could dominate Wall Street. Matthew Koder, who is set to replace Meissner, would need to come up with something special to change that.

The author is Antony Currie, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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