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Bank of America Talent Exodus Cuts Europe Market Share in Half

Bank of America Corp's Thomas
The remaking of Bank of America’s worldwide investment- banking business is being overseen by Thomas Montag, 54, a former Merrill executive who became the lender’s president of global banking and markets after the acquisition. Photographer: Jonathan Fickies/Bloomberg

Bank of America Corp., hurt by an exodus of at least 30 senior investment bankers in Europe, is falling behind rivals fighting for a shrinking pool of business.

The company slipped to 11th place in European merger advice last year after taking over Merrill Lynch & Co. in 2009, from fourth in record 2007, according to data compiled by Bloomberg. Its share of investment-banking fees in Europe, the Middle East and Africa was cut by more than half to 2.2 percent since the acquisition, according to research firm Freeman & Co.

In response, the Charlotte, North Carolina-based bank, the largest in the U.S. by assets, is planning to hire as many as 30 managing directors in the region and is counting on its ability to finance and complete deals once business improves in Europe, said Christian Meissner, head of investment banking for Europe, the Middle East and Africa.

“The first priority is clearly rebuilding the talent base,” Meissner, 41, who joined in July from Nomura Holdings Inc., said in an interview last month at the bank’s European headquarters, steps from St. Paul’s Cathedral in London. “It’s easier to develop corporate dialogue while rebalancing your own business when things are relatively quiet.”

The remaking of Bank of America’s worldwide investment-banking business is being overseen by Thomas Montag, 54, a former Merrill executive who became the lender’s president of global banking and markets after the acquisition. Based in New York, Montag has been pushing to expand corporate and investment banking in Asia, where the company added almost 400 people since early 2009, and in Europe, where he hired Meissner to reverse the outflow of top bankers. The company had what it calls a “small” investment-banking team in London to cover all of Europe before the Merrill deal.

‘Lost Its Luster’

“It’s going to be tough,” said Giorgio Questa, a finance professor at Cass Business School in London and a former banker. “Competition has stiffened in Europe, where local players dominate in smaller transactions. The fact that Merrill would have failed had it not been taken over has damaged the brand. It has lost its luster.”

A sovereign-debt crisis leading to bailouts of Greece and Ireland has cut the European mergers-and-acquisitions business and sapped investor confidence. Asia may surpass Europe in investment-banking revenue this year for securities firms, according to Freeman data. Investment-banking fees in Western Europe fell 13 percent to $19.9 billion in 2010, the data show.

Bankers Depart

“We are some way off from the markets improving,” Meissner said. “I don’t see the sovereign crisis abating. Corporate balance sheets are extraordinarily healthy. The constraint is around confidence.”

Since Bank of America bought Merrill, it has lost London-based investment bankers including head of Europe corporate and investment banking Mark Aedy; financial-services adviser Caroline Silver; capital-markets banker Michael Findlay; health-care banker Richard Girling; and Matthew Greenburgh, an architect of the Royal Bank of Scotland Group Plc purchase of ABN Amro Holding NV in 2007. In Italy, investment-banking head Andrea Pellegrini left for Nomura, and in France, corporate and investment-banking head Marc Pandraud quit for Deutsche Bank AG.

Former senior employees resigned because the company promoted Bank of America executives over those from Merrill, there was a lack of clarity on compensation following the merger and a cultural clash between a Wall Street investment bank and a consumer lender, say people with knowledge of the departures. None of the ex-Merrill bankers would be identified because details of their decisions to leave are private.

Citigroup Loses Share

The exodus left the lender short of bankers covering industries such as health care, energy, mining and technology as well as weakening coverage in the region’s key economies.

In merger advice, the firm lost market share to European and U.S. rivals including Deutsche Bank, Germany’s largest bank, and JPMorgan Chase & Co., the second-biggest U.S. bank by assets, Bloomberg data show. The firm isn’t alone in losing European market share: Citigroup Inc. didn’t rank in the top five for M&A advice in Europe in 2010, according to Bloomberg data. Morgan Stanley ranked number one, the data showed.

“Bank of America’s resources, both financial and talent, are very constrained,” said Roy Smith, finance professor at the Stern School of Business at New York University. “Merrill Lynch has the institutional clout and access to be able to expand investment-banking revenue in Europe and in emerging markets, where much of the action last year was.”

Still, he said, “there is always the question of how much damage to the Merrill Lynch franchise of the past has been done by its present owners -- probably, quite a bit.”

Claims Settled

Bank of America Chief Executive Officer Brian T. Moynihan, 51, is seeking to fix relations with regulators, investors and customers amid loan losses and a surge in litigation. In December, the firm paid $2.8 billion to government-owned Fannie Mae and Freddie Mac to end claims it sold defective mortgages.

“There’s been a perfect storm against the Bank of America-Merrill Lynch merger,” said Michael Nix, a portfolio manager at Greenwood Capital Inc., a Greenwood, South Carolina, firm that managed $807 million as of June 30. “Brokers combining with investment banks clash culturally, create a lot of disruption, which has been magnified by the headline risk at Bank of America. The model works. It will just take time.”

Jonathan Moulds, president of the European unit, said Bank of America needs to focus more on corporate and investment banking. “In 2011, I think you will see growing client confidence translating into increased activity,” he said in an interview in London.

Meissner’s Role

Montag, who worked from London for several months last year, put Meissner in charge of reviving Europe, something he helped do at both Lehman Brothers Holdings Inc. and Nomura.

When Meissner, an Austrian and former equity-capital-markets banker, joined Lehman’s German investment-banking business from Goldman Sachs Group Inc. in 2003, Lehman ranked 16th in advising on German takeovers, according to data compiled by Bloomberg.

Adding senior bankers, luring staff from rival banks as well as from government, boosted Lehman’s ranking to seventh by 2007, the data show. In Western Europe, the firm climbed to seventh from 11th place in the period, the data show.

Meissner rose through the Lehman ranks to become head of investment banking for Europe and the Middle East in April 2008 and co-CEO for the region weeks before the firm filed for bankruptcy in September of that year. He became Nomura’s deputy global head of investment banking, overseeing its international expansion after helping arrange the sale of Lehman’s European unit to the Tokyo-based brokerage.

Share Sales

Bank of America has recruited investment bankers from Royal Bank of Scotland, Deutsche Bank and Citigroup. They include M&A adviser Adrian Mee from Nomura and energy banker Julian Mylchreest from Citigroup. It is strengthening its financial-services group and hiring for the Scandinavian markets.

Improvements are beginning to show in the underwriting of share sales, where Bank of America ranked fifth in 2010 in Europe, Middle East and Africa, up from seventh in 2009, according to data compiled by Bloomberg. Among the 34 stock sales the firm helped manage last year was Deutsche Bank’s 10.2 billion-euro ($13.6 billion) rights offer and the $1.8 billion initial public offering of Norwegian insurer Gjensidige Forsikring ASA.

Rankings Improve

In research, the firm ranked first for overall pan-European coverage in the 2009 and 2010 All-Europe Research team survey by Institutional Investor magazine. Bank of America also climbed in bond underwriting for European borrowers, rising to 12th in 2010 from 18th in 2009.

Even in Italy, where Bank of America slipped from being the top merger adviser in 2007 to completing just one deal last year, there is progress. The bank is advising A2A SpA, Italy’s largest municipal utility, on negotiations with Electricite de France SA over the control of Edison SpA, Italy’s largest power producer, according to people with knowledge of the talks. It is also helping Milan-based UniCredit SpA find a partner for its Pioneer Global Asset Management unit.

“Our transaction execution capability is in very good shape,” Meissner said. “We need to capitalize on this with more senior client-facing people.”

While Bank of America has the ability to provide the financing for the deals its bankers help arrange, the lender has turned down some transactions in the region because of the risk involved in putting up its own capital, according to two people with knowledge of the talks, who declined to be identified because the information is private. Bank of America executives declined to comment.

‘Commitment of Capital’

Becoming a top player “will require the commitment of capital to the loan book in Europe and the ability to endure a high level of investment in people and relationships,” said Philip Keevil, a senior partner at investment bank Compass Advisers LLP in New York. “All of this is dependent on Charlotte remaining fully committed and, even then, on investment-banking management in New York, where the money is being made, continuing to be supportive.”

The firm has been gaining in Asia after hiring almost 400 people and focusing on integrating Merrill’s investment-banking business with corporate lending at Bank of America. In M&A in Asia, the company has taken market share from Citigroup and Nomura, according to data compiled by Bloomberg.

“This is a people business, and clients like consistency,” Meissner said. “When you lose senior people, you suffer. Our Asian business, which has had a tremendous year, is a good example of what can happen when you reverse the trend.”

Meissner said he is giving the Merrill rebuilding project a few years.

“It’s hard to put this into the context of a single year,” he said. “You have to look at this as a multiyear project. The strategic opportunity for Bank of America is huge. The challenge is making it work.”

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