A US banks analyst predicts
Bank of America Merrill Lynch’s (BofA) radical restructure, Project
New BAC, could lead to the bank’s US-based wealth management
business being dissolved into the rest of its consumer
business.
According to US banks analyst Erik
Oja at S&P’s Equity Research, the implementation of phase II of
Project New BAC, could result in BofA’s US-based wealth management
entity becoming increasingly integrated.
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“BofA wants to integrate all the
products together and cross-sell to households. So, instead of
households just having a checking account, they [BofA] want to try
to cross-sell them into having a brokerage business and wealth
management, estate planning – everything,” Oja said.
Doubts over
strategy
Oja remains unconvinced that this type of strategic shift will
work out well for BofA, citing Citigroup and Travelers’ attempt to
undergo a similar business reorganisation about 15 years ago.
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By GlobalData“The way the financial system is
evolving – things like brokerage are becoming increasingly
commoditised, so, the way to add value is through wealth management
and investment management and tax planning, legal help, and estate
survey planning,” he said.
“Unless, BofA decides to break up
into five different companies, which, at this point, is not going
to happen, they have to pursue that strategy. That is the only
option available to them. The party line is ‘we are going to try to
cross-sell and penetrate all levels of the consumer markets’,” Oja
said.
The move towards a one-stop-shop
approach will be a dramatic step for the world’s largest wealth
manager, especially at a time when private wealth managers are
increasingly specialising their offerings around core segments.
Launched in April, Project New BAC
is designed to cut costs, in two phases.
Phase I saw the bank announce 3,500
job cuts with an estimated 10,000 further redundancies and a
drastic management restructure, including the surprise departure of
Sallie Krawcheck, head of the bank’s Global Wealth and Investment
Management (GWIM) arm.
Phase II, which will begin in
October and conclude in March 2012, could lead to a further 30,000
jobs being culled with redundancies expected for wealth management
and operations management staff.
“It’s never a positive, when you
have a sudden management shake-up, especially, somebody like Sallie
Krawcheck, who had exemplary performance in her previous role – she
used to be head of Alliance Bernstein. She’s very talented, but you
never know how much of this was political, how much of this was
performance,” Oja said.
Krawcheck’s removal was even more
surprising given the strong performance of the division over the
past year. Second quarter net income this year stood at $506m, a
54% rise on the second quarter of 2010.
Krawcheck’s successors
split wealth roles
Newly appointed co-chief operating officers David Darnell and
Tom Montag will take over Krawcheck’s responsibilities.
Darnell is to oversee the US-based
wealth management business, which predominantly consists of the
mass affluent segment. Montag will look after the international
wealth operations, consisting mainly of high net worth and
ultra-high net worth clients.
According to the S&P analyst,
the fact that BofA is making proactive changes is one positive
aspect.
“All the changes that BofA is currently implementing are not at
all a cost cutting exercise, I think, it is a performance exercise.
In other words, they need to drive profits,” Oja concluded.
