Bank of America and Merril Lynch
The paper presents an overview of the affects of the merger between Bank of America and Merrill Lynch. It also contains a few recommendations of different trends of mergers that could be used by the Bank of America and Merrill Lynch.
When we talk of mergers and combined businesses, Bank of America and Merrill Lynch is a prominent name. Both of these companies have combined to come out as a single company and have been since BofA’s $50 billion achievement of the Thundering Herd which has authoritatively closed in January, except for their investment depositories (Ken Clark, 2008).
For instance, have a look at Pepsi’s $6 billion possession of its two principal and prevalent self-regulating bottlers, Pepsi Bottling Group and PepsiAmericas (Anonymous, 2008). Pepsi accredited its bankers as follows: “Centerview Partners, Bank of America Securities and Merrill Lynch are performing as monetary consultants to PepsiCo.” (Anonymous, 2008)
What the Merger bestows?
“According to the personnel who are familiar with issues regarding the Bank of America and Merrill Lynch, even though both the companies are combined together, they still need to work on the merger of their broker-dealer operations”. (Fund directors, 2008)This merger will include their investment banks. As a person would expect, there are
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In spite of everything, Bank of America and Merrill Lynch’s lack of incorporation so far have as greatly to do with the background and traditions of the two companies as with several authorized apprehensions. Bank of America experiences a predominantly difficult assignment in integration of these two investment reservoirs. A lot of most important assessments have nevertheless to be well-defined, together with elementary arrangements such as who will manipulate the most significant investment-banking groups.
Bank of America furthermore is trapped up in an authority fight concerning Merrill Lynch bankers in Europe, who don’t become visible to be prepared to let go of the command. Financial News accounted that Merrill bankers and Bank of America decision-makers are alienated over whether the mutual speculation commerce will be run by means of the Merrill Lynch-style decentralized representation or Bank of America’s centralized ‘domination and control’ configuration, according to contemporary and previous higher-ranking administrators.
“Merrill Lynch’s investment bankers have been concerned for months that they would be unacknowledged by their innovative supervisors at Bank of America” (Binyamin Appelbaum and Zachary A. Goldfarb. 2008).
Bank of America moreover has been obstructed by the speedy swiftness of disappearances of well-known bankers. A trio of most highly ranked bankers, together with Merrill Lynch’s head of unifications and achievements, imperfections to a less significant opponent, Centerview Partners.
By contrast, Barclays sign above the majority of the foremost position in its investment bank to Lehman Brothers veterans within a month of the combination pronouncement even supposing the amalgamation wasn’t authoritatively done in anticipation of four months later.
Sooner or later, Bank of America and Merrill Lynch will get hold of the authorized concerns sorted out as they come together with their investment banks. Getting the enlightening matters sort out will be a more complicated obligation. Certainly, while the BofA and Merrill investment banks got independent recommended recognition from Pepsi, there is an individual position where they will be merged: the confederation tables that grade investment banks by the capacity of agreements worked on. There it will all be accounted for underneath the Bank of America Merrill Lynch name, which positions 4th in the U.S. and 5th internationally.
In the past decade Merrill Lynch has grown into essentially two main companies. One company is a thriving wealth management company with 1.4 trillion dollars of assets managed by the firm’s 17,000 brokers in the fast growing management asset operation. The other is a multi-billion dollar fixed income or bond trading operation that invested heavily in relatively high-risk, high-return securities backed by subprime home mortgages.
Up until mid year 2008 the company had been very profitable and showing signs of growth. But in August when the mortgage meltdown hit Wall Street the company’s market value of its portfolios went into a tail spin (Matthew Karnitschnig, Carrick Mollenkamp and Dan Fitzpatrick, 2008).
When the housing market crashed many investment banks were heavily invested in it. Merrill Lynch was heavily invested in collateralized debt obligations (CDO’s). They are a type of asset backed security which is constructed from a portfolio of fixed income assets. Many homeowners started to default on their loans.
This caused the value of Merrill Lynch’s CDO’s do drastically decline in value and because of the nature of the obligation it became very difficult to actually measure its true market value. Because of this Merrill almost filed for bankruptcy and ultimately sold itself to Bank of America for 50 billion dollars. The new chief executive after the merger “wrote off $31 billion of securities for pennies on the dollar” to raise more capital. (Anonymous, 2008)
In light of the current financial environment we recommend that Merrill Lynch should cut down on its exposure to subprime mortgages and concentrate more on credit worthy residential and commercial mortgages. This would include stricter lending standards and credit checks. These credit checks would ensure that the lenders would be able to pay back the loans in the long run and not default.
Merrill should primarily focus on the asset management aspect of their business and should expand further. The emerging markets of India and China are good places to expand their business. They should target high net worth individuals coming out of these countries. On top of this Merrill should offer their services to the already existing high net worth clients of Bank of America. This greatly growing influx of new potential clients will further help their bottom line.
In order to achieve further efficiency and profitability we recommend that Bank of America should analyze the productivity of every Merrill broker. Doing this they will be able to weed out the marginal producing brokers and keep only the top revenue gaining brokers. This will improve Merrill’s bottom line. Also we suggest that Bank of America keep Merrill a separate subsidiary to retain Merrill’s brand name which will provide marketing potential.
Clark, Ken. 2008. Bank of America and Merrill Lynch to Merge – Will Maine’s Section 529 Plan Be Affected? Retrieved on 12th June’ 09 from http://collegesavings.about.com/b/2008/09/14/bank-of-america-and-merrill-lynch-to-merge-will-maines-section-529-plan-be-affected.htm
Anonymous. 2008. Bank of America Buys Merrill Lynch Creating Unique Financial Services Firm. Retrieved on 12th June’ 09 from http://www.bankofamerica.com/merrill/index.cfm?template=press_release
Bissonnette, Zac. .2008. Merrill Lynch plans massive layoffs with Bank of America merger. Retrieved on 12th June’ 09 from http://www.bloggingstocks.com/2008/10/20/merrill-lynch-plans-massive-layoffs-with-bank-of-america-merger/
Appelbaum,Binyamin and Zachary A. Goldfarb. 2008. Weekend Merger Struck With Bank of America. Retrieved on 12th June’ 09 from
Karnitschnig, Matthew, Carrick Mollenkamp and Dan Fitzpatrick. 2008. Bank of America to Buy Merrill. Retrieved on 12th June’ 09 from http://online.wsj.com/article/SB122142278543033525.html
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