A Very Savvy Move by Bank of America

It's taken nearly five years, but it appears that Bank of America (NYSE: BAC  ) is finally taking the bull by the horns. In its most recent 10-Q filing, Merrill Lynch revealed that it may be subsumed into B of A before the end of this year.

This is a smart move by Bank of America, which agreed to acquire Merrill Lynch in 2008. Since that time, the venerable brokerage has functioned as a subsidiary of B of A, and the road to this full union has been rocky at times. Still, this merger should be beneficial to both parties -- and here's why.

Money will be saved, regulators will be happy
Keeping the two entities separate has been expensive and has added to the complexity of the Bank of America behemoth -- just the kind of issues that CEO Brian Moynihan has targeted with his Project New BAC. Even after trimming $60 billion in unneeded bloat, the bank knows investors expect more.

As Bloomberg and The Wall Street Journal note, the move will help Moynihan attain $8 billion in savings this year, and please regulators who are nagging the biggest of the nation's banks to make themselves less convoluted. More simplicity and transparency will aid in winding down these institutions if the need ever arises, something regulators have been pushing in the form of "living wills" for large financial institutions holding assets of $50 billion or more.

Brokers will be happier
Since Bank of America took over the failing brokerage, relations with Merrill advisors have been strained. Many were unable to make the transition, and B of A's edicts regarding cross-selling and management fees have infuriated the herd.

Bringing Merrill into the bosom of the B of A family should, I think, help make these workers feel part of the team, thus easing some of the tension that still exists. Considering what a cash cow -- er, bull -- the unit has been, making these brokers feel at home is paramount. After all, JPMorgan Chase (NYSE: JPM  ) bought Bear Stearns in 2008 under circumstances similar to the B of A acquisition of Merrill, but chose to fold the purchase directly into the company. If their brokers grouse about JPMorgan, they're not as vocal about it as the Merrill advisors have been.

Happier brokers will likely participate more in the big bank's cross-selling effort, as well. Though Bank of America has been pushing this concept since 2011, Merrill advisors have been resistant. But, knowing how successful Wells Fargo (NYSE: WFC  ) has been with the model -- Wells even has a page on its website dedicated to the strategy -- B of A has persisted, even hiring two of Wells' cross-selling wunderkinds.

B of A can learn a thing or two from the Merrill crowd
Both sides working more closely won't happen overnight, but it will eventually become the norm at Bank of America. Will some of Merrill Lynch's prowess at making profits and satisfying customers rub off on the rest of the B of A crew? I think it will, as long as the rest of the company is amenable.

I think the fact that the big bank is keeping the Merrill name indicates an acknowledgement of the importance of the brand. I hope it also means B of A will be receptive to learning how that regard was earned, and apply those lessons to its own tarnished name.

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  • Report this Comment On August 19, 2013, at 11:00 AM, NeedaClue7 wrote:

    Normally, there is very little difference between a business which is run as a wholly-owned subsidiary (as Merrill is now) verses a division of it's parent (as Merrill will be after the merger). I can only think of two things that might change, which are (1) lower regulatory filing costs, since Merrill will no longer separately file with the SEC and other agencies, and (2) possible tax savings from the merger, probably most of which are state tax savings (this because Merrill might be able to shelter its profits with the settlement losses BAC has once the two businesses are housed in the same entity).

    Otherwise, I see very little that will change. Most large corporations are a conglomeration of different companies, with a parent and numerous subsidiaries. In most cases the employees identify with the parent, and hardly know or care whether their business unit is a subsidiary or division.

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