Bank of America snapped up Merrill Lynch for $50 billion, as the subprime mortage mess battered its bottom line and wrecked the Bull's stock price.

The merger was made over one weekend in September, and there was scarcely time to examine the brokerage's books much less hammer out an integration strategy.

Merrill's derivative exposures gave the firm considerable financial indigestion. But integrating the brokerage's "thundering herd" of brokers may enable the nation's largest bank to realize the thus-far elusive goal of providing retail customers a single place to stop for banking and brokerage services.

The acquisition officially closed January 1. Bank of America and Merrill executives quickly began laying groundwork to create a one-stop financial shop for customers across the country .

The major decisions related to integrating Merrill's nearly 17,000 brokers with Bank of America's 1,500 existing securities representatives were made in the first quarter, according to Mark Alexander, head of technology and operations for global wealth and investment management at Bank of America.

Since then, the firm has produced detailed business-requirement documents and low- and high-level system-design documents, and worked on systems coding, says Alexander. In late August, Bank of America hired Sallie L. Krawcheck, former chief financial officer of Citigroup, to run its $700-billion-asset global wealth and investment management unit. Since then, a slew of top-level positions have been filled.

The firm will spend the next 10 months preparing to move Bank of America Investments' brokerage reps and all their accounts and related data to the Merrill brokerage platform. Over that time, Bank of America aims to make headway on the even more challenging goal of melding securities and banking products of the two firms. "The largest transition challenge is the amount of integration work between banking and brokerage as well as the overall scale of change," says Alexander.

Alexander would not elaborate on Bank of America's plans to unify the two firms' products and operations and create a successful network of one-stop financial outlets. This is a long-held goal in banking, but one that has so far defied the desires of large U.S. financial firms.

The repeal of the Glass-Steagall Act in 1999, prompted by the merger of Travelers and Citibank, made it possible for bank holding companies, like Bank of America, to own other financial companies. The resulting Citigroup offers its high-net-worth clients an integrated banking and brokerage experience through a dedicated relationship manager, typically a private banker. But like other leading U.S. financial institutions, the merely affluent must still manage their banking and investments through separate parts of the company.

Bank of America aims to change that.

In August and September, it plans to move Bank of American Investments' reps onto the Merrill platform. That's 20 months after the acquisition closed, during which competitors can poach talent spooked about the pending conversion's potential to disrupt business.

But the benefits should outweigh that risk. The firm's financial advisers are slated to have the technology and training to incorporate not only brokerage information but commercial banking records into the financial planning services they provide customers.

"Significant resources are being dedicated to providing clients with a distinctive experience that combines banking and brokerage," Alexander says.

Bank of America is already partnering its advisers with 770 wealth-management bank executives "to offer clients integrated deposit and credit solutions, Alexander says.

A big step toward unifying platforms will occur Oct. 26, when Bank of America Investments (BAI) legally becomes a part of Merrill Lynch Global Wealth Management, the continuing brand for Bank of America's wealth management services. Bank of America Securities, which deals with institutional clients, will make the legal jump in the second quarter.

Until BAI reps convert to the Merrill platform, they will maintain existing customers on the BAI brokerage platform provided by Fidelity Investment's National Financial clearing unit, Alexander says. New customer accounts will be opened on the Merrill platform and have access to its products and services.

Alexander says Merrill's full array of products and services will become available to BAI customers after the conversion.

The firm has already integrated some technology to give BAI's top reps access to products such as stock available from initial public offerings. A Bank of America certificates-of-deposit initiative launched in the second quarter has resulted in $326 million of sales by advisers, and an FDIC-insured sweep product developed for Merrill clients has attracted more than $22 billion.

The bank is also implementing multiple referral programs , and has already generated more than 40,000 referrals to advisers from units including the consumer bank, online bank channels, and the global corporate and investment banking. The bank's wealth management unit has provided more than 20,000 since June, Alexander says, adding fourth quarter will introduce referral programs in banking units including home loans and retirement solutions.

Coming up will be a new platform for managed accounts, which will consolidate Merrill's current 10 programs and BAI's four. The new platform will provide six different types of managed accounts and is slated to be operational in June. BAI reps will get access to it, after they switch to the Merrill platform.

Integrating products and services, however, is an easier task than accounts and the technology platforms that support them. Matthew Bienfang, senior research director at Boston-based Towergroup, notes the nuances of individual customer accounts-systematic withdrawals and deposits, links to third parties, sweep cycles, cost-basis numbers, etc.-will have to be replicated on the Merrill platform.

"A lot of numbers such as cost basis are bound to be missing, so some functions on the Merrill platform simply won't be available to customers," Bienfang says.

The benefits, however, should be significant. "It will dramatically improve BAI advisers' productivity and give them access to a wider range of products and services, as well as significantly reduce costs when clearing and related services are brought in-house," Alexander says.

Alexander would not estimate how the conversion would affect BofA's revenue, costs or earnings. Perhaps for good reason. The platform conversion mostly entails writing new code and working out bugs. But converting BAI's mostly bank-branch-stationed reps to a Merrill live-and-breathe Wall Street mindset could take much longer.

"You can't give a 16-year-old the keys to a Ferrari. There's a reason Merrill advisers get so many certifications and licenses," says Rob Blevins, a recruiter at Roulette Executive Search Consultants.

The big plum is cross-selling banking and brokerage products. Done right, the efficiencies of integrating the two businesses gives customers better products and services at lower costs. And, for BofA, leads to better customer retention.

Blevins, who recruits brokers for many of the largest financial institutions, says Wachovia, bought this year by Wells Fargo, was ahead of competitors in terms of integrating banking and brokerage.

His own account allows him to view banking and brokerage products on a single screen. A Wells Fargo spokesman said it was too early in its merger to comment on its plans to further integrate banking and brokerage.

Bank of America already puts brokerage and banking accounts onto a single page view as well.

The direction the bank appears to be headed, however, is an "enterprise" view of the customer that goes well beyond displaying banking and brokerage accounts on a single website. It gives the firm's clients ready access to both banking and brokerage products, typically coordinated through a single relationship manager. And the financial institution's advisers can view which of the customer's relationships are most profitable.

"The financial institution can really do the analysis to say what the customer is worth to the enterprise, and it can give special pricing and other perks to improve the longevity of that relationship," says Bienfang.

A customer, for example, may have a $4 million IRA account that rarely trades, generating few brokerage fees. The same customer may also hold a large commercial credit line that is very profitable for the banking side. The financial institution could offer the IRA account for free or a new product such as a discounted managed account, pleasing the customer at relatively little cost and further tightening the relationship.

"You want to make sure you're not cannibalizing one business over the other, but that's less likely once you start looking at the customer form an enterprise perspective," Bienfang says.

In a truly integrated business, some revenue from the commercial side could be shared with the brokerage unit. Such fee sharing, however, would likely raise a host of issues. "Who owns that client relationship now, and what will the broker say about lower fees on the brokerage account?" says Alois Pirker, an analyst at Boston-based Aite Group.

A first step may be to give advisers information about a client's bank relationships to consider in the financial planning process, and later introduce a relationship manager who can speak on behalf of banking and brokerage, Pirker says. He points to HSBC's Premier service, which requires a $100,000 minimum and has been rolled out in 40 countries to two million clients, generating about $2,000 in fees annually per client.

Premium customers receive discounts on banking and brokerage products, and perks such as higher overdrafts or no closing costs on a mortgage. Each client works with a dedicated relationship manager who pulls in financial specialists when required.

Although HSBC has established Premier branches in large cities globally, most customers communicate with their relationships managers electronically, via email or call centers enabling the wealth-management concept to be disseminated to less-than-wealthy customers.

HSBC's U.S. operations clear through Pershing and while it offers online brokerage, it has nowhere near the investment firepower of a self-clearing Merrill Lynch. "That's a huge advantage for Bank of America," says Pirker.

 

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