For Bank of America's acquisition of Merrill Lynch to be a success, it will need to carefully corral the firm's “Thundering Herd” of nearly 17,000 stock brokers.
On Monday, Bank of America chief executive Ken Lewis said Merrill's brokerage force, symbolized by the iconic bull symbol, was the “crown jewel” of a $50 billion deal that turns the nation's biggest consumer bank into a major player on Wall Street. But notoriously independent-minded brokers are known to jump from firm to firm, looking for the employer that treats them and their clients best.
This tendency flares up in mergers, as competitors see a chance to poach brokers, who typically bring their clients – and the fees they pay – with them. Often firms respond with retention bonuses, which Bank of America says it will pay.
Brokers, also known as financial advisers, provide clients with investment advice and sell them stocks, bonds and mutual funds. Typically, they're not on salary, receiving commissions or other fees off their book of business.
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Stephen Thomas, principal with Charlotte wealth management firm Linden Thomas & Co., said he's sure Merrill brokers are already getting calls from rival firms such as UBS and Morgan Stanley. A former Merrill broker himself, Thomas said he likes being part of a smaller firm now, and others could feel the same. His firm, which has a little less than $1 billion in assets under management, has already been picking up talented financial advisers as other firms downsize during the industry's tumult.
“Bank of America has a lot riding on its ability to retain the brokers,” said Thomas, who nonetheless thinks the deal is good for Charlotte as a financial center.
While huge in most aspects of financial services, Bank of America has been a relatively small player in the brokerage business. Its Premier Banking and Investments group, which targets clients with $100,000 to $3 million in assets, has about 2,000 financial advisers. Overall, Bank of America has $867 billion in client assets, compared to Merrill's $1.6 trillion.
That's why Lewis said Bank of America plans to keep the well-known Merrill Lynch brand and organization. The company, however, has provided few other details about what the combination would look like, including the management structure.
During a call with analysts Monday, Merrill CEO John Thain highlighted the business his brokers could reap from Bank of America's far-reaching banking franchise, while Lewis said he was already planning to send referrals their way, looking to cross-sell banking products to Merrill's clients.
Noting that his bank serves 59 million U.S. households – one out of every two – Lewis said: “We finally have enough financial advisers to take advantage of that.”
Still, the integration has its challenges.
The bank has to find ways to wring out $7 billion in costs, which likely will affect back-office jobs, not advisers serving clients. And banking and brokerage cultures have often clashed in other industry mergers.
Merrill is known for its distinctive “Mother Merrill” culture, which rewards top performers and makes brokers hard to recruit away. Bank of America also has a strong performance-based culture, but it's steeped in conservative banking traditions, not Wall Street risk-taking.
“We suspect that the cultural differences between the two organizations may prove more challenging to integrate than many of (Bank of America's) previous retail banking and consumer-lending centric acquisitions,” Sandler O'Neill analyst Jeff Harte wrote in a research note Tuesday.
For the merger to go smoothly, Bank of America needs to send a strong message that little will change for Merrill in the combined company, said Stephen Winks of Richmond, Va.-based Advisory Practice Services, an industry consulting firm. “You don't want to alienate the brokers,” he said.
In Charlotte, brokers at competing firms said they expect to go after Merrill advisers. But they noted many may take a wait-and-see attitude, particularly at a rocky time for the markets.
One of Merrill's biggest rivals is Wachovia Securities, the brokerage arm of the Charlotte bank that has nearly 15,000 financial advisers. In the midst of its own merger with St. Louis-based A.G. Edwards, it has lost some brokers to other firms, but says it's meeting retention goals.
Wachovia is known as an aggressive recruiter of competitors' brokers.
This year it has hired away more than 400 advisers, putting it on pace for a third straight firm record, spokesman Tony Mattera said. He noted those coming on board are much higher revenue producers than those who are leaving.
Mattera wouldn't comment specifically on Merrill, but said: “We always tell our story everywhere. Depending on what is happening at any particular firm at any particular time, brokers are either more or less receptive to our story.”