Will Bank of America Cut the Bull?By
Hold this truth to be self-evident: If in the late ’70s, FM acts Styx, Kansas, and Foreigner decided to form an arena supergroup, complete with a panoply of lasers and dueling keyboardists, they’d have sold out world tours well into Iran-Contra. Try pulling off the same thing today, however, and SKF & Co. would barely fill the auditorium at Staten Island High.
Where am I going with this? Financial conglomerating, of course. In earlier years, the notion of a Bank of America Merrill Lynch superbank would have been darn near irresistible: all those ATMs, Merrill’s famous “thundering herd” of brokers, permutations of cross-pollination. Investors would surely pay a premium for that kind of franchise.
But now the era of the financial supermarket model is so over—Citigroup architect Sandy Weill just admitted as much—and BofA, which has its hands full dealing with the ongoing hit of the subprime crisis, isn’t exactly wowing investors with its ownership of the Merrill bull. Yes, BofA Merrill ranked No. 2 globally in net investment banking fees for the first half of 2012, according to Dealogic. And in the second quarter it was ranked tops globally in equity capital markets deal volume and was among the top three investment banks in high-yield corporate debt, leveraged loans, and asset-backed securities and syndicated loans. Merrill has been adding brokers for 12 straight quarters.
And yet Charlotte-based BofA is nearing an agreement to sell Merrill’s non-U.S. wealth management business to Swiss money manager Julius Baer, according to Bloomberg. An announcement could be made as early as Aug. 13, two people with knowledge of the matter told my Bloomberg colleagues. The operations outside the U.S. manage about $80 billion of assets for clients in Europe, the Middle East, and Africa, as well as high-net-worth customers in Latin America and Asia, outside Japan.
Could this trumpet the beginning of the end of BofA Merrill? When it signed on the dotted line to buy Merrill, BofA was trading at $27 and then rallied to nearly $40 within a month of the announcement. Today the shares are at less than $8. It took no time for then-BofA Chief Executive Officer Ken Lewis to publicly regret the mega-merger, claiming the feds pressured him to consummate despite Merrill’s deteriorating financials. This was the same man who in late 2007 confessed: “I’ve had about all the fun I can stand in investment banking.”
BofA, the product of BankAmerica’s 1998 merger with NationsBank, is no stranger to short-lived forays into investment banking. Robertson Stephens. Thomas Weisel Partners. Montgomery Securities. Those franchises never went much of anywhere under the map-covering mega-bank.
Current CEO Brian Moynihan was brought into the mix in 2004 when BofA bought FleetBoston, where he was an executive. As my colleagues Paul Barrett and Dawn Kopecki reported, in the summer of 2011, when regulators queried management of the too-big-to-fail bank about financial options it might consider if overall economic conditions worsened, BofA responded that one possibility would be to issue a separate class of shares linked to the performance of Merrill Lynch. Which is a step removed from spinning off the iconic bull outright.
So far, Moynihan has shed $50 billion in assets since taking over in January 2010. And he vows to cut billions more in costs and sell assets as part of his Project New BAC. BAC is the stock’s ticker, and the share price has been cut in half under Moynihan’s watch.
If he’s now amenable to selling off such a chunk of Merrill Lynch, how much of a stretch would it be to suggest he could be persuaded sell off or spin off the rest?