| NEW YORK, July 17
NEW YORK, July 17 Hidden in the numbers released
in Bank of America's second-quarter earnings report on
Wednesday was a single figure - 27.6 percent - that should
delight the wealth management industry.
It represents the fat pretax profit margin squeezed from
$4.5 billion of revenue at the bank's Global Wealth and
Investment Management division. Both the revenue and profit
margins were quarterly records and, in a conference call with
analysts, Chief Financial Officer Bruce Thompson said that
profit margin from wealth management could eventually reach 30
At a time when some investors and analysts are skeptical
about Morgan Stanley's goal of realizing a 20 percent
profit margin from its wealth business, Bank of America's
results raised appreciative eyebrows. Morgan Stanley, which
operates the world's biggest retail brokerage unit with about
17,000 financial advisers, reports second-quarter results on
Michael Mayo, an analyst at CLSA Securities and a notorious
critic of financial conglomerates, asked Bank of America
executives if they had bulked up their wealth unit's
profitability by folding other revenue sources besides
traditional brokerage services into the calculation. If not, he
said, it could represent the strongest profit ever in the
history of Merrill Lynch.
Bank of America bought Merrill Lynch in early 2009 during
the depths of the financial crisis. Merrill was then the world's
It's primarily "the traditional wealth management business
of Merrill Lynch," BofA Chief Executive Brian Moynihan replied,
though he would not comment on the pre-merger profit history.
Profitability in the quarter was helped by a $15 million release
of a loan-loss reserve as credit quality in the global wealth
Wealthy clients are showing a greater hunger to draw down
lines of credit and make riskier investments than in recent
years, Moynihan said on the conference call.
The bank does not disclose profit margins for its four other
principal business lines, a spokesman said. But the wealth unit,
which includes about 15,700 Merrill brokers and 1,000 U.S. Trust
Co. private bankers, generated margins of 25.9 percent in this
year's first quarter and 21.3 percent in last year's second
Revenue at the Merrill businesses climbed 10.5 percent from
a year ago to $3.5 billion, while U.S. Trust posted an 8.3
percent jump to $750 million, its highest total in five years.
Merrill U.S. Wealth Management head John Thiel and his boss
David Darnell "have done a good job" managing expenses and
generating revenue but they also "benefited dramatically" from
the rising U.S. stock market, Moynihan said.
Moynihan also tempered his view of investor optimism, noting
that "there is still a lot cash" in high net worth investors'
bank and brokerage accounts.
Revenue of $4.5 billion in the global wealth division was
the second highest of Bank of America's five major businesses
last quarter, though its profit of $758 million ranked fourth,
trailing the $1.4 billion net income reported by its consumer
and business bank.
Client balances and deposits in the wealth division fell
from the first quarter, reflecting tax payments and other
seasonal factors. Advisers, however, more than doubled assets
that clients gave them for long-term investments of more than a
year to $7.7 billion.
Like Wells Fargo & Co. and other big banks that have
absorbed broker-dealers in recent years, Bank of America has
been pushing hard to cross-sell loans and investment services to
wealthy clients, an effort sometimes resisted by traditional
brokers. But the bank said that brokers referrals to its
business and commercial banking unit rose 144 percent over the
past year while the commercial bank's referrals to wealth
management were up 69 percent.
Merrill, once the world's largest broker, ended the first
quarter with 15,759 financial advisers - down 6 percent from
16,764 one year earlier. The "vast majority" of those that left
were trainees, a spokesman said. The bank had about 4,300
advisers in its training program at the beginning of the year.
Bank of America overall reported a 70 percent jump in
quarterly earnings, driving its shares up Wednesday by almost 3
percent in late afternoon trading.