Too big to succeed? The scale of Brian Moynihan’s ambitions at Bank of America

Fixing the retail bank JUST OVER A year ago, Merrill Lynch looked like the biggest lemon ever sold in a banking M&A deal and Ken Lewis the biggest sucker.

But this April 16, as Brian Moynihan, the new chief executive of Bank of America Merrill Lynch, announced to investors the bank’s first-quarter profits of $3.2 billion, it was hard to find anyone who didn’t think that the acquisition of Merrill Lynch was a great idea.

The reason was simple. The group’s global banking and markets business unit, driven by Merrill Lynch’s former business, produced almost $10 billion in revenues and $3.2 billion in profits, balancing out weaker performance and continuing losses in some of Bank of America’s traditional retail business lines – without it, the group’s profits would have been zero. "In just about every respect, that acquisition improved and enhanced Bank of America," says Dick Bove, a veteran analyst with Rochdale Securities. "Merrill Lynch is the best part of the whole business."

You can almost sense the relief at the firm. The shotgun acquisition in September 2008 had been plagued with high drama – did Ken Lewis pay too much for the investment bank and brokerage house? Did he fail in his duty by not revealing to shareholders the extent of Merrill Lynch’s bad positions, which resulted in losses that required the bank to be propped up with $45 billion of taxpayer money? Did John Thain pull one over the aggressively acquisitive North Carolina bank with regards to compensation packages at Merrill Lynch?

The Federal Reserve and the US Treasury had encouraged Bank of America to save Merrill Lynch and the US financial system. But within a matter of months the SEC was blaming Bank of America for misleading its own shareholders over the deal, with a series of investigations that forced it to cough up $150 million in settlement and sent Lewis into ignominious early retirement. Bank of America’s humiliation seemed complete when it struggled to recruit a credible outsider to come in as chief executive and repair the damage.

Just what Merrill Lynch cost Bank of America is something of an impossible task to work out, says Jaime Peters, analyst at Morningstar. Bank of America was forced to take on about $38.6 billion of additional preferred stock and issued roughly $1.4 billion new common shares in the transaction. Repaying Tarp and issuing more shares would have adjusted that cost further, she points out.

But what a difference a year makes. The Merrill Lynch businesses, which briefly seemed to have poisoned the bank, quickly became its saviour.

Now, with the acquisition suggesting it was actually vital to preserving Bank of America, Moynihan sits atop a huge financial firm that seems to disprove all that the regulators and politicians are saying about the need to break up big banks.

The old Merrill businesses held together last year and played a full part in the great investment banking boom of 2009. Bank of America Merrill Lynch’s size and diversity have enabled a quick return to profitability and a speedy repayment of the taxpayer. Losses are now slowing at the consumer businesses as well and Moynihan is super-bullish.

"We have three groups of customers: consumers, from mass market to very wealthy; companies from small and medium-size businesses in the US to the largest corporations in the world and institutional investors," he says. "Against those customers we have put the best product set ever assembled in financial services. No one else has what we have on our scale in cashflows, capital and market size. And I am sure that we will provide shareholders with strong returns, because if we can’t win from this position, then no one can win."

Suddenly, investors’ concerns are more muted and nuanced. Can the new management team – many entirely new to the bank, almost all new to their roles within it – carry on doing such a good job at this large, diverse and complex firm? The only other financial conglomerate that got so big, Citigroup, also enjoyed early successes from combined deals between Citibank and the Salomon investment bankers, rather like Bank of America Merrill Lynch is now seeing. But those early wins were tough to sustain and Citigroup soon proved unmanageable. It is now being broken up.

Struggling with vision

What the vision for Bank of America Merrill Lynch is three or more years from now is hard to see. "The reason why some people struggle with that is because no one has ever had such a strong collection of franchises as we do," says Moynihan. "But the vision is what it always was. What we’re doing is quite straightforward. We’re giving those groups of customers exactly what they want."

He says: "We’re done with acquisitions. Shareholders don’t have to worry about financing any more of those. But nor will there be dispositions in those businesses serving core customer groups. We’ll keep all of these businesses and shareholders can just sit back and watch the earnings flow in."

Yet for all this, the character of Bank of America Merrill Lynch is already much changed. It is much less of a domestic retail and commercial bank and it takes some getting used to the idea that, for now, the best-performing parts of it are the former businesses of Merrill Lynch. Even if it doesn’t jettison some of the US retail businesses, where the economics might remain tough long after loan delinquencies subside, these will become less important to the bank.

Moynihan recoils at being called the chief executive of a conglomerate. "Conglomerates are in lots of businesses that have nothing to do with each other," he says. "We may have very varied customer segments but we are only in financial services with a reasonably narrow set of personal, corporate and investor offerings. We are not big in insurance, for example."

The ambition to derive extra revenue from cross-selling is admirable but the danger is that it might be a chimera that distracts a new management team that has been thrown together inside a much-changed organization with no firm culture yet established.

"Yes, we could run those businesses separately and they are powerful businesses in their own right," says David Darnell, president of global commercial banking. "But linked together they are more valuable," he says, linking the fingers of both hands, "as I’m sure Brian Moynihan will tell you." His business hopes to benefit mightily both from applying Merrill’s ECM and M&A capabilities to thousands of medium-size companies and by doing banking business for companies run by wealthy individuals whose personal riches are invested by Merrill financial advisers. And there is evidence that this is happening.

Shareholders like visions. Employees like visions. Journalists like visions. So Moynihan and his newly assembled management team must at least publicly play up these opportunities of somehow knitting Merrill Lynch’s global reach and investment banking and wealth management expertise with Bank of America’s retail and commercial banking-oriented domestic business.

But does Moynihan need to play this card? He’ll have done well just to keep the retail business intact, keep Merrill’s wealth management business intact, ride out the mortgage and credit card down cycle, and try to repair those capital markets businesses most disrupted by the merger. Why make promises that might not come true?

Moynihan is more understated than many chief executives but he is quietly ambitious. He wants the firm to be the top investment bank globally, the best wealth manager in the world, maintain the position as top US retail and commercial bank, and build a corporate bank globally that can compete with Citigroup. He says: "In dealing with large corporations, wealthy individuals and institutional investors, the vision is to grow global businesses so that they look exactly the same across the largest 20 or 30 economies in the world."

And many customers, especially wholesale corporate customers, are egging him on. They want a competitor for JPMorgan and Citi.

Moynihan seems to see no reason why that cannot come to pass. "No other firm has what we have and the opportunities it affords us," he says, pointing to the way the businesses all complement each other. But synergies and leveraging cross-selling opportunities are too frequently proffered during acquisitions, only to be followed some years later by divestitures, streamlinings and rightsizing because, as one analyst says, "big equals complicated," pointing to Citigroup. And complications could be intensified by rhetoric out of the Federal Reserve and global regulatory bodies that big equals risky, and is therefore to be discouraged.

So just how big and complex can Bank of America Merrill Lynch get? And can Moynihan stay on top of the inherent risks that come with straying from its US consumer roots?

Who’s who?

"There is one obvious concern now facing Bank of America Merrill Lynch," confesses a former senior manager. "Can it manage the risk of having, merging and growing all these different business lines?" He points to the leadership in place. "We hear from clients that they are concerned that most of the leaders now in place are all so new to their roles and to each other." He is right. Moynihan is new to the chief executive role for which he may not have been his own board’s first choice, if rumours of the other bankers that were approached to take over from Lewis (but declined the opportunity even to be formally interviewed) are to be believed. He has spent six years scurrying around the bank. After coming to Bank of America with the FleetBoston merger in 2004, Moynihan was head of wealth and investment management until three years ago when he became head of the corporate and investment bank for a year, and then after a brief spell as general counsel had a year as head of the consumer bank before replacing Ken Lewis as chief executive in January.

A new chief financial officer has also just been announced – Charles Noski – who had been CFO of an eclectic mix of firms including global security firm Northrop Grumman and AT&T.

BofA’s former CFO, Joe Price, is now head of retail banking. Tom Montag, the global head of markets and banking, was a Goldman Sachs veteran, hired by John Thain to join Merrill Lynch. By the time he arrived, Merrill Lynch had already fallen into the rescuing embrace of Bank of America. He could have ducked out, but in a sign of why many of his new reports warm quickly to the man, he chose to stick it out. He says: "Bank of America had stepped up to save the day by buying Merrill Lynch and I felt a strong sense of obligation to them to make this work."

Sallie Krawcheck, head of global wealth and investment management, joined in August last year and had been chief executive of Citi’s wealth management business before falling out with Vikram Pandit.

Look at the senior central staff jobs and one layer down in the business lines and it starts to feel bewildering. Paul Donofrio, BofA’s global head of corporate banking, was head of investment banking. Bruce Thompson, now chief risk officer down in Charlotte, was global capital markets head in New York. Barbara Desoer was chief technology and operations officer but took over the Countrywide business to become head of home loans. Catherine Bessant, the new global head of technology and operations, was the head of corporate banking.

"David Darnell, head of commercial banking, is really the only one who’s been there and been in that role for a very long time," says the former employee.

That this whole new leadership is confusing and challenging is palpable from the interviews Euromoney conducts with the senior leaders. Montag admits: "We’re now this mix of people from different firms and it has taken some time to learn how to work together and learn what we can and can’t do here." It’s a sentiment echoed by Krawcheck, and also by Lisa Carnoy, co-head of global capital markets. The institutional framework has not yet been forged and nor have the instinctive personal relationships among this new management group. Who goes to whom when a key decision needs to be made? It’s not always totally clear.

To say that those in place are not competent for their new roles, however, would be a mistake. Moynihan might lack the easy presentation skills and immediate charisma of some of his peers, and is "uneven" in his oratory, as a polite colleague says. But unexciting and stoical might well be what is needed given the backlash against Wall Street and its over-exuberance.

He has an exuberant firebrand in Montag who can gee up the old Merrill troops and whose large frame might remind some of them of a younger David Komansky. Montag has re-energized many of the talented reports that he has within the investment bank. Crucially, they say, that investment bank is now one clear firm with transparent reporting lines, as opposed to the pre-merger days when the banking and markets teams existed largely in isolation from each other under previous Merrill presidents Greg Fleming and Dow Kim.

Krawcheck is as tough as well-manicured nails and seems, for now, to have done a good job of reassuring and re-enthusing the thundering herd of financial advisers that Lewis described as the crown jewels of the Merrill franchise. That herd began leaving the doors shortly after the merger but Krawcheck has stopped the rush. One adviser says: "All I want is for Bank of America to be kept away from us at the Merrill Lynch wealth management business. Krawcheck has made sure she stands between them and us and that’s good for me." Krawcheck recalls early in her tenure reading press reports of how the business was imploding and advisers were leaving in droves. "I was looking at my management reports and they were telling me our retention rate had never been better." She explains: "For the FAs the first and most important thing was that Bank of America did no harm. Second they were the biggest bank in America and so had millions of potential clients and third they even brought new capabilities for the advisers in more cash like products for which there has been high demand. The biggest challenge now is to prioritize these many opportunities."

Competitors and former colleagues concur that Moynihan is smart, and that, when it comes to being prepared to deal with the firm in its entirety, he is tireless. Even those who questioned his appointment internally admit that he has grown with his new role. And Moynihan has one very large plus going for him – he is not Ken Lewis. "Lewis just could not be bothered with Washington," says one Bank of America employee – a characteristic that does not befit the current regulatory environment. Moynihan, with a legal and administrative background, gets Washington.

Lewis was also something of a xenophobe. Although his acquisition record over his eight-year tenure as chief executive was impressive, he was purely focused on buying businesses that complemented a US retail banking strategy – Fleet Boston, US Trust, MBNA, Countrywide. According to one employee, Lewis referred to any international business as "foreign". At a time when financial firms were embracing globalization and the importance of a booming Asia and emerging markets, Bank of America missed the boat. It can, therefore, only be an advantage to have Moynihan in the driving seat now that the firm has Merrill Lynch and its international presence under its belt.

Moynihan has shown an early commitment to a heavier international travel schedule than his predecessor. Since his appointment he has visited China, Japan, France, Switzerland and London. The offices around him on the 50th-floor executive suite of One Bryant Park will often be empty. Montag is travelling too and hiring much more aggressively outside the US than in it. For 2009, fully 82% of the bank’s revenue came from its home market and just 18% from the rest of the world. That will change, although how far and how fast remains to be seen.

Moynihan is also the only person who has, albeit briefly, overseen each of Bank of America’s businesses. Now with a mix of executives under him with different backgrounds and cultures, having the overview and six years with Bank of America can only be an advantage.

For all the dreams of global expansion and adding value from the links between all of the business units, Montag says Moynihan keeps everyone in check. "Brian constantly reminds us that infrastructure needs to be in place first and that is no small or quick feat. But we can’t get ahead of ourselves he says, and rightly so." Analysts agree. Morningstar’s Peters says: "Better they expand product line and geographies slowly than make the mistake of some of their competitors."

Capital markets growth

Now that the dust has settled and those that wanted to leave have left and taken clients with them, the big focus seems to be building back and expanding on the capital markets franchise. Peters says there is a lot of work to be done and remains unconvinced that the deal was a good one. She estimates that to earn Bank of America’s 11% estimated cost of equity on the additional capital burden, Merrill Lynch needs to earn $5 billion annually to prevent dilution. She adds that she is expecting capital markets and investment banking to be the focus for Moynihan: "As opposed to Lewis who just kept flip-flopping about investment banking," she says.

The firm has done a good job already, although the merger was clearly fortuitous in its timing. While some star names such as Greg Fleming left quickly after the merger and more besides, the immediate aftermath of the financial crisis made many bankers in secure employment sit tight. And when they paused for breath, the Merrill bankers realized that they might have fallen on their feet. Bank of America provided the balance sheet that clients so desperately wanted during the crisis, which made it easier for Merrill Lynch’s capital markets business. If JPMorgan was out demanding investment banking deals in return for balance sheet lending, so too now could Bank of America Merrill Lynch.

It helped kickstart the combined capital markets in spite of the amount of leavers. The merger was tough – "the most difficult thing I’ve ever done," says one senior executive – but the combined businesses were extremely complementary. Bank of America was primarily strong only in US debt. Merrill Lynch brought ECM and a presence in European and Asian capital markets.

Now Merrill Lynch’s former head of ECM, Lisa Carnoy, and Bank of America’s former head of DCM, Alastair Borthwick, co-head the capital markets franchise. Carnoy says their roles are not split ECM and DCM as would be the obvious thinking. "We both look at the whole business and work together." Borthwick points to the merged firm’s success in cross-asset deals as one example of where the two sides have complemented each other.

"The Consol Energy deal neither firm would have been able to do on its own," he says. The firm acted as merger advisor to Consol in its acquisition of Dominion’s Appalachian oil and gas business. It also advised the company on a stock purchase, was joint lead arranger of the bridge loan, and was a lead manager raising both equity and debt in the capital markets for Consol.

Borthwick puts forward the Merck AG bridge financing in Europe as a deal Bank of America would not have been on without Merrill Lynch’s international bond distribution.

The push to make sure the two sides’ strengths combine from a geographical standpoint is also aggressive. Carnoy says: "We don’t just want the US dollar deal. We’re telling employees, go get on a plane and get the yen deal too. Some employees had never left the US, now they have to." So the bank’s US-based real estate bankers and analysts, experts in the most quintessentially local of businesses, have been visiting Japan in the hopes of repeating the firm’s success in reopening the US Reit market.

There is a lot of work to be done, however, in building up to become a top-tier global capital markets player.

From ranking eighth in global ECM league tables in 2008 and 10th in global IPOs, the firm is third and first respectively year to date. It is fifth in European equity capital markets league tables although Merrill Lynch’s success in Asian ECM has taken something of a tumble since the acquisition. Merrill Lynch was fourth in Asian ECM before the acquisition. Year to date, the firm is not in the top 10. The firm’s rankings are too inconsistent internationally, and its US global peers are running away with business. Montag says 60% of the firm’s investment banking revenues are still domestic. "We need to do better globally," he agrees.

To get there, substantial hiring is taking place internationally. More than two-thirds of the hires in 2010 will be outside the US insists the firm.

There has already been significant hiring internationally. Borthwick says attracting talent abroad has not been a problem. "We’re a top firm, but also we are in growth mode. That’s a big selling point for bankers in those regions who want to be part of a growing firm."

It’s perhaps easy to be excited about Asia, where a lot of the hires are being made. The firm on both sides was almost nowhere in the region so things can only get better and the investment is clearly being made. Europe, however, is a sore point. Although the European ABS and MBS business has recovered somewhat since the acquisition – the firm now ranks sixth year to date, up from ninth last year but down from second for Merrill Lynch in 2008 – European DCM is struggling. "It’s a major focus," admits Carnoy. London-based DCM competitors are critical. "It’s a mess there and morale needs a big boost," says a syndicate official at a European firm.

After the top-line management team was announced, the firm parted company with two of its leading capital markets bankers: Amir Hoveyda, head of European DCM; and Sid Prasad, head of FIG capital markets and financing.

Borthwick knows full well that something must be done. "We added some new talent and made some other changes there," he says. In April, the firm appointed Giles Hutson, Morgan Stanley’s co-head of EMEA DCM, as a managing director. A Merrill veteran, the much-liked Paul Richards, was also appointed as head of EMEA DCM in March.

The M&A business is also in dire need of a fix-up. Merrill Lynch ranked fourth in US M&A in 2008, now the combined firm ranks 6th after some key departures to Deutsche Bank after the merger. A former M&A employee says: "At Merrill Lynch, there was an entrepreneurial culture. You were encouraged to do what was needed and to be innovative in order to get things done for the client. At Bank of America, that culture did not, and to my mind, still does not exist. There is conformity and a structure in place for everything. Bank of America has a strict way and rules for doing things, and entrepreneurs are stifled."

Montag knows that the bank is a weakened force in M&A but rationalizes that if it is going to spend a period lower down the league tables, then perhaps better that be when volumes are low in M&A. Some investment banking employees have already started to return. Todd Kaplan rejoined in February to be vice-chairman of global banking. "What they need to do is to employ 25 more Kaplans who will bring with them the clients, then they could be back in the M&A game," says the former employee. One of the keys to success will be to leverage the deal-making expertise of Andrea Orcel, now executive chairman of global banking and markets – a role that sees him leading client coverage and strategy around the world.

Montag seems aware of the challenges. "There’s a lot of hard work to be done," he says. "From a simple perspective, it will just take time for people to work out who they need to go to get things done, and what they can and cannot do."

If all the cultures need bringing together, Montag is a good man for the job. Thrown in at the deep end, he admits he had an emotional start. "Things were changing every day. But I felt a sense of obligation to make it work. The bank said they wanted to make it work and so I got behind them. I think people realized that I really wanted to be there and would be there for those who felt the same way." Carnoy clearly appreciated Montag’s efforts and herself emailed her employees to tell them that she was promising to stay and hoped they would too. It’s the kind of deal that once made, you cannot go back on. Montag says: "People know when you yourself are committed. If you’re not they can sense it."

In March, Montag hosted a meeting for the firm’s most senior 200 investment banking and market employees in London, which he maps out as a key battleground. He outlined what he expects from them beyond their day jobs of turning profits in their core business. The added value would be measured in firm-building work, taking time out from meeting clients and running deals to recruit strong staff, finding ways to work across the firm. In return, his deal to the firm’s top ranks was "I’ve got your back". In other words, I’m on your side, I’ll look out for you.

Such exhortations delivered in a T-shirt proclaiming: "Be global, be great" seem cringe-inducing to the cynical outsider. But the troops love it. "It was very un-Bank of America," says one employee. In fact, one senior employee says it was very "un-any Wall Street firm". This team-building effort is clearly what is most needed. Bank of America Merrill Lynch’s global markets business is now a mix of so many different banking cultures with so many ambitions that Montag, by virtue of being neither from Merrill Lynch nor Bank of America, is in an optimal position for generating a sense of new identity. One banker says: "I like the fact that he is never happy. He doesn’t just want us to generate revenue, he also wants us to do the marquee deals, to be number one in thought leadership as well as in the league tables."

Krawcheck is also a fresh face needed to hold on to Merrill Lynch’s enviable thundering herd. Merrill Lynch came with 18,000 financial advisers, compared with Bank of America’s 1,900. And so far its impact on Bank of America’s revenue stream has indeed been significant, although not as profit-boosting as the capital markets business.

In 2008, Bank of America produced revenues in wealth management of $4.2 billion from premier banking and investments, US Trust which served wealthy families, and Columbia Management. For the full year 2009, with the addition of the thundering herd, revenues became more than $18 billion. To the bottom line, Merrill Lynch added $1.6 billion in net income to Bank of America’s global wealth and investment management business.

Krawcheck’s lack of background allegiance to either Bank of America or Merrill Lynch puts her in a good position to not upset either side. She says she has put financial solutions advisers in Bank of America branches as a boost to services, although admits it is too early to tell if this has been beneficial. Whether that peeves Bank of America’s banking employees, who can say? Krawcheck insists not. "Bank of America already had a culture of working together across business lines. It was never about an individual’s or a unit’s P&L here."

That said, the advantage of the merger clearly lies with Merrill Lynch’s advisers. If retail clients agree, the details of their Bank of America deposit accounts can be shared with Merrill Lynch’s advisers. A good chunk of Merrill Lynch’s brokerage clients would have banked with Bank of America. Now the advisers have access to view almost the entirety of their clients’ assets, giving them a clear advantage when it comes to advising.

Clients have been open, says Krawcheck. "Many Bank of America banking customers have also been clients of Merrill Lynch’s advisers for years, so are more open to sharing their deposit details," she says. This ability to cross-sell between retail clients and advisers puts Bank of America Merrill Lynch ahead of its competitors. According to one source, Citibank does not allow its parent’s wealth management business the same luxury of seeing into client assets.

Whether there will be any link-up between Merrill Lynch’s private-client business and Bank of America’s legacy wealth management business looks uncertain. Bank of America bought US Trust in 2006 – at the time the fourth-largest private bank in the country. Krawcheck says: "There is no doubt of the value the two firms bring to each other, but the models are entirely different even down to compensation structures. You cannot smash them together. Wealthy clients want to have choice in how they do business with us."

Tie-ups

If wealth management and investment banking are the new face of Bank of America, it remains to be seen what can be done with the traditional business lines.

The vision seems to be on melding the traditional lines of business with those that are new.

Montag, for example, is now being pressured to look beyond his realm of capital markets and investment banking and see what value the rest of the firm can add. He says he is excited by how much value the commercial bank, for example, could add to the investment bank. He also now has overall responsibility for the corporate bank – an area he had no previous experience in. Donofrio, who is the direct head of corporate banking, has been commandeered to make sure the global investment banking footprint will help grow the corporate bank in areas such as cash management and treasury securities. It’s all part of this vision of knitting all the business lines together. "Where we have relationships in place with chief executives on the investment banking side internationally, we can also have conversations about using us as their corporate bank," Donofrio says.

The aim is to be where Citigroup is in global corporate banking. It’s a big aim. Getting firms to change their corporate banking partners is no small feat. Hires in corporate banking have been aggressive, particularly in Asia. There has been some success already, enthuses Donofrio. Bank of America Merrill Lynch was appointed as the global US dollar corporate bank for Nomura this year.

Krawcheck also faces having to see what opportunities lie elsewhere in the firm for the wealth management division. They do not lie within investment banking, she says, for all the often-trotted-out notions of investment bankers leading IPOs and M&A deals for private company owners and then handing these newly minted individuals over to the grateful private bank. Krawcheck isn’t impressed by this kind of talk. "Investment banking leads are one-off cases. Most high-net-worth clients who are looking to do something in investment banking like an IPO already have their own advisers."

That’s a different perspective to Krawcheck’s old firm, Citigroup, which focused on bringing investment banking and the private bank together. Credit Suisse’s private bank has also benefited substantially from offering investment banking products to its clients. Krawcheck, however, says it is rather the commercial bank that provides the greatest growth opportunities. "Bank of America serves one in every three companies in the US with $2 million to $2 billion in revenues. Those owners are prime candidates for the wealth management business, and could provide tens of millions of dollars in revenues."

At the centre of it all

The commercial bank seems to lie at the centre of this ideal of how all the various business units can work together. Carnoy, Montag and Krawcheck all mention the value that the commercial business can add and how they are working with David Darnell. And who wouldn’t want to work with Darnell? He’s a warm and fun man with a charming Southern drawl. He also knows his business inside out – he’s been doing it at Bank of America since 1979, having started with NCNB. "We were very big... in North Carolina," he recalls. "Then we moved from one state into two states and then across the southeastern US and then Texas and the Midwest and then the northeast and west coast." But in all this time of acquiring territory and customers, Bank of America still mainly generated revenue by lending money, and providing treasury services that funded loan growth with corporate deposits.

That Darnell is thankful for the acquisition of Merrill Lynch is clear. "I’ve been waiting 30 years for this." It’s easy to see why. While the Merrill Lynch businesses benefit from having the commercial bank, it is the commercial bank that benefits the most from the partnership.

Since connecting the commercial bankers and financial advisers last spring, there have been more than 7,000 referrals of advisers’ clients to the commercial bank. Darnell says almost 10% of those ended up converting. And as the two business sides learn more about how each business works, the closing rate is likely to go up. The other way around, the commercial bank has referred about 2,700 business owners to the wealth management business.

Having Merrill Lynch’s broader investment banking business to put in front of commercial banking clients has also had a big advantage. One gets the sense that Darnell had been beating his head against a brick wall for years trying to get Bank of America to improve its equity and M&A franchise domestically so that his clients could use the bank for more than just debt deals. One also gets the sense that while the commercial bank and Bank of America’s predominantly debt capital markets business were supposed to work together, they didn’t.

"I didn’t have to explain to Merrill Lynch investment bankers the opportunity of working with the commercial bank. They just got it straightaway and got on a plane and met with the commercial banker. The commercial bankers couldn’t believe it, and nor could the clients. Merrill Lynch bankers understand the opportunities of a national franchise because that’s how it was there with their financial advisers spread out around the country," says Darnell. About 2,000 commercial banking clients, typically those with roughly $2 billion of revenues and a likelihood of regular visits to the capital markets, are covered also by an investment banker. Revenues demonstrate the impact of the Merrill Lynch investment bank. In 2009 investment banking revenues from commercial banking clients rose 55% on 2008 – primarily in equity capital markets, says Darnell.

"The commercial bank feels re-energized," says Darnell. It must do. Before buying Merrill Lynch, the commercial banking business really had nowhere left to go. It already served one in three US businesses with more than $2 million in revenues. It had 160,000 clients already. In 2009, the business produced a loss. That turned around in the first quarter this year, with net income of $713 million, in part, says Darnell, because of Merrill Lynch’s influence. There’s much more room for growth, he says. At present the bank has a market share of just 14% when it comes to being on investment banking deals for commercial banking clients. Darnell says initial targets would be to get that to 18% to 20% and then see where it can go from there.

Yet wonderful as the vision of leveraging the business units is, one can’t help but wonder if it really will add much more value. Senior employees say that it is still very early days. Montag says: "Given where we were a year ago versus today, we’re encouraged to say the least. But we’re still learning as we go and trying to get a sense of how much value there is to be had from all the different business lines. We’ve got a whole lot of work ahead of us to maximize what we can be."

A process driven back

Krawcheck agrees that it is too early to be hasty in leveraging up the business units, and hints that it is not what Moynihan really wants even if that is what he is saying publicly.

"There is a sense on the outside that we need to prove it’s all working together fast here but inside the firm we’re not rushing," she says. "Bank of America is about processes. We’re using management science, client polls and analysis to see how we can best grow the business, manage referrals and convert referrals into business wins."

She adds: "Bank of America doesn’t just let you do what feels right according to your gut instinct. It wants proper management information and proof points and that takes time. And it will depend purely on what clients tell us they want."

Darnell echoes this point on processes with reference to how his commercial banking clients are approached from different business lines. "You have to have an organized way of doing things," he says. "We have a client management process where the client manager sits in the middle and wealth management, investment banking, treasury go through him or her to get to the client. You don’t just fly down to the client’s office and pitch a deal. You do it in an organized way and you achieve that through teamwork."

Talk of deriving value from mining the links between the bank’s different business might distract attention from the fact that Bank of America is in a few traditional lines of business now that maybe ought to be jettisoned. Rochdale Securities’ Bove is adamant that retail banking is a lemon, for example. "It’s time to admit that US retail banking is not adding value," he says. Bove questions whether Moynihan is aware of this but not being fully open about it. "By opting out of overdraft provision, Bank of America faces losing customers to competitors. If customers cannot get that service they will walk. Perhaps that is Moynihan’s plan – to force the retail business to scale back. Perhaps Moynihan realizes that the government is pressuring profits in that business line. But he would never want to admit to making that move or admit to now banking on Merrill Lynch’s old franchise for growth."

Morningstar’s Peters says retail banking won’t be less profitable in the long run. "It will come back, and the business lines are offsetting each other for now. The retail bank is still a bread-and-butter business and we don’t view Bank of America’s consumer business as having lost its way yet as we would Citi’s."

Moynihan insists: "There’s nothing to spin off or get rid of here. All our core businesses are important to customers." For his part, Montag, in his gee-up the troops moments, reminds them how scared competitors are now of Bank of America Merrill Lynch. Perhaps the most frightening thing about it is that it doesn’t seem to be in a rush anymore. The management team may be new but it is confident that it has all the customers and all the products and services it needs. It can take its time working out how to maximize the benefits.

Let the others sweat, for once.