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NEW YORK After a 10-month span that saw the sale of the firm, some of the most tumultuous markets in generations and the departure of about 2,300 brokers, the head of Merrill Lynch's “thundering herd” of financial advisers says the tide is turning.
The iconic New York brokerage firm, now part of Charlotte-based Bank of America Corp., has started hiring trainees again, is gradually rolling out more banking products and is finding clients more eager to test the investment waters, says Dan Sontag, head of the combined unit called Merrill Lynch global wealth management.
“People are really starting to move forward here,” Sontag said in an interview with the Observer this week. “I see my group not wanting to talk about the rearview mirror as much.”
In Washington, lawmakers continue to investigate the machinations behind the deal announced last fall and completed Jan. 1 under pressure from regulators. But in interviews at Bank of America's midtown Manhattan office tower, top executives say the merger is moving ahead and the combined company is producing strong early results. One hot area, for example, is the business that issues stocks and bonds for corporate clients.
In the first quarter, former Merrill Lynch businesses played a major role in the bank's return to profitability, and another dose of strong results would be welcomed in the second quarter as Bank of America wrestles with loan losses in a soured economy. Analysts estimate the bank will report second-quarter earnings of 26 cents per share on July 17, down from 44 cents per share in the first quarter.
In a report this week, Rochdale Securities analyst Dick Bove said he expects a “confused” quarter full of one-time gains and losses. “It may not be until the third quarter that investors can get a clear reading of the company's earnings power,” Bove said.
Sontag, 53, started at Merrill in 1978 as a financial adviser in Colorado Springs, Colo. Now he's in charge of the brokerage unit that Bank of America chief executive Ken Lewis has called the “crown jewel” of the deal.
The combined firm had about 15,800 financial advisers at the end of the first quarter, down from more than 18,000 at the end of 2008. Sontag says the firm expected some departures because it didn't offer retention packages to all of the advisers. Nearly half of the brokers who have left had less than two years of experience and weren't likely to excel in down markets, he said.
The firm, however, has continued to recruit advisers from rival firms and has recently started hiring trainees in anticipation of the market's revival. Sontag declined to talk about the competition, but one of the likely recruiting targets is brokers at the Morgan Stanley Smith Barney joint venture now going through its own merger.
A number of key steps remain in the Merrill integration. About 1,500 former Bank of America advisers will start using Merrill computer systems to open new accounts in October. But they won't fully switch over until October 2010.
Merrill is also in the early stages of serving up banking products to their clients. The firm has offered a money-market fund that has attracted $5billion in deposits. Merrill is also offering Bank of America certificates of deposit in some areas. In addition, more than 700 former Bank of America bankers are working with brokers to sell banking products. Another area coming together in the merger is the capital markets business, led by Bank of America veteran Bruce Thompson. This business helps corporate clients issue new bonds and stocks as well as restructure existing debt.
As the global credit crunch shows signs of easing, the volume of new stock and bond offerings is taking off, a bright spot that began emerging earlier this year, Thompson said. Through the first half of the year, the combined company places in the top three of many of the industry rankings for stock and bond offerings.
“Despite all the noise, across the board the first six months have been very good,” Thompson, 44, said. “What we feel the best about is really the momentum that's picked up during the second quarter.”
Although he could not comment on financial results, Thompson said “issuance levels” in the second quarter in the capital markets business were the best the company has ever had.
As for the merger, Thompson said his unit has completed job cuts that are part of the 30,000 to 35,000 layoffs expected in the Merrill deal and now is looking to make selective hires. He declined to comment on the total number of employees in his unit, but he said he has about 100 in Charlotte who work on the debt side of the business.
In his role, he reports to Brian Moynihan, Bank of America's global banking and wealth management head, and Tom Montag, a former Merrill executive who runs all of global markets. Montag has been seen as one of the high-level Merrill executives who could depart, but sources said he has been traveling extensively overseas for Bank of America in recent weeks.
Even as Bank of America proceeds with the merger, it still faces questions about whether the two disparate cultures can make the deal work. The Financial Times reported last month that former Merrill executive Winthrop Smith met with Bank of America CEO Lewis in April and offered to buy back all or part of Merrill, a report that Smith later denied.
Sontag, the wealth management head, was at the lunch at Bank of America's Charlotte headquarters, and said he heard no such offer.
“I got there a little late for the hour meeting, and I left the lunch a little early but I never heard any conversation around them suggesting they wanted to somehow buy the firm or some piece of the firm,” Sontag said. “It was really about them wanting to get to know Ken. They wanted to help. They care about Merrill Lynch. They wanted to see it work.”
