From the January 2009 issue of Research Magazine • Subscribe!

January 1, 2009

Bank of America, Merrill Seal the Deal

Wirehouse BDs

BofA, Merrill Seal the Deal

Bank of America and Merrill Lynch shareholders have approved BofA's purchase of Merrill. And, according to Merrill Lynch, the vast majority of its top advisors had recently signed its retention-bonus plan.

Meanwhile, Merrill Lynch Chairman and CEO John A. Thain, along with President and COO Greg Fleming, CFO Nelson Chai, Global Wealth Management President Robert McCann and General Counsel Rosemary Berkery, requested that they receive no bonus for 2008.

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94 Years of Independence

1914: Charles E Merrill & Co. opens.

1915: Firm changes its name to Merrill, Lynch & Co.

1956: Takes Ford Motor Co public.

1971: Goes public and lists on NYSE.

1999: Last year as largest underwriter of stocks/bonds.

2007: Ousts CEO Stanley O'Neal after mortgage losses and his secret talks with Wachovia; taps John Thain as new leader.

2008: Shareholders approve sale to Bank of America.

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"When this transaction closes, Bank of America will have the premier financial-services franchise ...," says Bank of America Chairman and CEO Kenneth D. Lewis. "With Merrill Lynch, we also will significantly add to our global footprint in several businesses, including investment banking and sales and trading, enabling us to deepen existing client relationships and create greater opportunity to establish new ones."

Bank of America says it is now expected to have the largest wealth management business in the world with nearly 20,000 financial advisors and about $2.5 trillion in client assets. Global investment management capabilities include a 50 percent ownership in BlackRock Inc., which had $1.26 trillion in assets under management at September 30.

Under the terms of the transaction, made public September 15, 2008, Merrill stockholders will receive 0.8595 of a share of Bank of America common stock for each share of Merrill Lynch common stock held immediately prior to the merger. Merrill will become a wholly-owned subsidiary of BofA.

The acquisition is expected to close by the end of the year, pending the receipt of regulatory approvals and the satisfaction of other customary closing conditions, according to a Merrill statement.

"By approving this transaction, Merrill Lynch stockholders expressed confidence that the combination of our firm and Bank of America will create one of the most powerful financial institutions in the world, with unmatched capabilities and service," explains John Thain, chairman and CEO of Merrill Lynch. "This combination will create great value for our stockholders and clients around the world."

The deal, originally valued at $50 billion, is now valued at less than $20 billion because of the falling value of BofA's stock. Some observers see the "shotgun deal" as symbolic of the recent transformation of Wall Street and the dominant role of banks.

Soon after news of the merger became public, Goldman Sachs Group Inc. and Morgan Stanley applied to become bank-holding companies.

While both firms have already cut thousands of investment banking jobs in the past 12 months, reports have circulated recently that thousands more job reductions are expected. At the end of the third quarter, Merrill had some 61,000 staff members worldwide, and BofA included 247,000. Over the next three years, up to 30,000 positions may be eliminated, representing roughly 10 percent of the combined 308,000 employees.

In early 2008, Merrill said that annualized revenue per FA within its 16,000-plus advisor force was about $862,000.

Executive recruiter Darin Manis pointed out in late 2008 that Merrill's recent retention-bonus scheme is based on production credits rather than revenue credits, and that on production credits, the average advisor now does less than $862,000 per year.

"Overall, I believe for advisors doing less than $1 million in production this is more of an attrition package vs. a retention package," said Manis, head of RJ & Makay, a Colorado Springs, Colo.-based recruiting firm. "Almost all FAs are doing under $750,000 today, and maybe half (from a head-count perspective) are doing under $500,000."

In the week after the packages were announced (October 24-October 31), Manis says his firm organized more than 150 face-to-face meetings between Merrill FAs and other firms.

BofA has pledged to cut $7 billion in expenses, or 10 percent of the combined companies' total costs, via job cuts in overlapping areas. These plans may have had a role in the weak retention scheme, experts say.

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Janet Levaux, MBA/MA, is the managing editor of Research; reach her at jlevaux@researchmag.com.

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