New BofA leader must weigh Merrill’s future

When a new chief executive takes over at Bank of America Corp. after Ken Lewis departs in January, he or she will inherit a sales force of Merrill Lynch brokers who are wondering about the direction of their firm.

The departure of Mr. Lewis, 62, “adds to the uncertainty” about where the firm is going, said one broker who left Merrill Lynch & Co. Inc. this year and asked not to be identified. “The turmoil over there is not over with.”

One decision the new chief executive will likely face is whether BofA should sell — or spin off — the Merrill brokerage business, industry observers said.

A potential sale or initial public offering of the retail securities giant and its 15,000 representatives and financial advisers would be complicated, as Merrill and BofA are still being integrated, observers said.

Still, if BofA’s recently minted board looks to hire a chief executive with no history in the securities business, the bank could ultimately elect to cut its ties to Merrill, which it agreed to buy last September in the darkest days of the credit crisis.

That deal was completed in January.

“Ultimately, what’s going to happen is that Bank of America will get rid of Merrill Lynch,” said one veteran Merrill adviser, who asked not to be identified.

The board most likely will appoint a chief executive with commercial banking experience, and give that person a mandate to focus on risk management and banking, not selling securities, the adviser said.

The adviser characterized the board’s thinking as: “We need a guy who knows how to run a bank successfully.”

Robert Stickler, a BofA spokesman, dismissed conjecture that a new CEO would dump Merrill.

“The assumption is that we have a very successful strategy,” he said.
Merrill’s future depends on whether the new chief executive wants to manage a company with a “universal banking model” that has a variety of business operations, said Alois Pirker, research director for the Aite Group LLC’s wealth management practice.

“My bet is, they’re going to try to integrate Merrill. But, if they get a core banker, that person may not be interested in retail brokerage,” Mr. Pirker said.

He downplayed any potential spinoff of Merrill, saying that no firm has the deep pockets to buy it.

Any sale or spinoff of Merrill is unlikely to occur in the next year or two, observers noted.

Mr. Pirker and others noted, however, that Merrill’s wealth management business can help drive Bank of America’s growth and earnings as the economy continues to recover.

Merrill has been a headache for Mr. Lewis since the $29 billion sale was completed Jan. 1. In December, Merrill reported fourth-quarter losses of more than $15 billion, and then paid out billions in bonuses to executives — a move that has led to questions about whether BofA’s management misled investors about Merrill’s health before the deal closed.

A federal judge in September rejected a $33 million settlement between the bank and the Securities and Exchange Commission, questioning what the bank had told its shareholders about the losses and why the company’s executives had not been sued.

Mr. Lewis’ sudden announcement to Bank of America’s board Wednesday that he’ll step down at yearend forces the company to work fast to name a successor.

There are good reasons to think it won’t look far for its next chief executive.

While there were several reports last week that the company will look at external candidates — the New York Times named former Wachovia CEO Robert Steel as one — there are strong candidates already in-house.

Sallie Krawcheck, who was hired in early August to head BofA’s global wealth and investment management business, is certain to be in the running.

When the announcement of Ms. Krawcheck’s hiring was made Aug. 3, Mr. Lewis noted that the “these [management changes] also position a number of senior executives to compete to succeed me at the appropriate time.”

When Ms. Krawcheck was hired, Brian Moynihan was moved over to head BofA’s global corporate and investment banking business — a move that would give him exposure to another part of the bank’s many businesses, and positions him as a potential CEO. Mr. Moynihan had previously held Ms. Krawcheck’s job as the head of global wealth and investment management.

Ms. Krawcheck, who ran the Smith Barney wealth management business at Citigroup Inc. until the end of last year, has leadership experience beyond the retail arena — she also served as Citi’s chief financial officer and earlier was chairwoman and CEO of the money manager Sanford C. Bernstein & Co. LLC.

Thomas K. Montag, who runs Bank of America’s investment banking business, is another candidate the board will likely consider, according to published reports.

Meanwhile, BofA on Friday said it will pay out about $713 million in dividends to the U.S. government, which took a stake in the bank during the financial bailout. The banking giant said it has paid $1.83 billion in dividends to the government this year through September under the Troubled Asset Relief Program.

Related Topics: Mergers and Acquisitions