September 20, 2018 / 9:19 PM / 2 months ago

Breakingviews - Merrill Lynch deal a qualified success for BofA

Reflections are seen in the windows of a Bank of America branch in New York, October 8, 2008. REUTERS/Lucas Jackson

NEW YORK (Reuters Breakingviews) - Buying Merrill Lynch has been a qualified success for Bank of America. 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 M&A and equity franchises, which are about to get a new boss, have faded under the BofA brand.

BofA’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. BofA 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, BofA’s ECM 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 BofA’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 BofA 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.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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