Bank of America Merrill Lynch seems to be defying the industry-wide viewpoint that big financial institutions are going to be broken up. It has launched a plan of attack that involves the firm getting much larger and more complex. Chief executive Brian Moynihan is shooting for being a global force in corporate banking and investment banking and has his next-level-down business heads hiring anyone who can bring in clients in those businesses.
He is ensuring Merrill Lynch’s thundering herd of private-client brokers remains a force, and he also intends to continue with US retail and commercial banking, even as analysts and investors begin to question the long-term return on equity to be derived from the bank’s largest and most defining legacy business. A task in itself, Moynihan also seems intent on building the cross-selling capabilities among the various units so that they become more dependent on each other. If there are those with fears that financial institutions might need to be broken up, Moynihan is apparently not one of them.
This raises a question – does he know more than the rest of us? Moynihan is smart. He is a lawyer by background. He is methodical and does things by the book, and has made sure he is thoroughly involved in what the Federal Reserve and White House are contemplating for the industry, unlike his predecessor, Ken Lewis.
Perhaps Moynihan’s guess is no better than any else’s right now and neither the Fed nor the Obama’s administration has a clear idea of whether or how to break up big banks. Moynihan might think that building as complex and large a business as possible on the back of the Countrywide and Merrill deals that the authorities fed to Bank of America might even deter a forced break-up. For shareholders, the justification would be building good businesses that might be spun off at high valuations if the government and regulators did get tough.
For now, it seems the strategy being adopted is to continue as if nothing will happen. All this second-guessing and reading between the lines proves one salient point – investors in bank stock and debt, bank managements and employees and their customers all deserve a decision on whether or not the banks are to be broken up.
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Further reading: Bank of America Merrill Lynch
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