No Way Will Bank Of America Do A Merrill Lynch IPO


Some folks are pushing the idea that Bank of America (BAC), after doing its shotgun wedding with Merrill Lynch could spin off the unit at some point down the road.

No freaking way.

Well, anything’s possible, we guess. Dino Mauricio of Getzler Heinrich tells The Deal that such a move makes sense, especially in light of the integration problems that the two companies have already experienced

As of today the banks have yet to merge their broker-dealer operations which includes the investment banking, capital markets and advisory businesses. Given the recent capital struggles, prominent banker defections and leadership conflicts, they may choose to give up integrating the businesses.

As a spinoff it allows shareholders to maximise the value to the asset. But this would at least two years from now. The market doesn’t value Merrill beyond its standalone value. The merger makes sense for now. You have a set of banks whose quality of assets are under intense scrutiny. Merrill’s capital markets, M&A, and the brokerage businesses are handcuffed right now due to the down economy, but as the economy improves so those businesses will flourish again

It just doesn’t work out. If you assume that an IPO couldn’t happen for at least another two years, possibly longer, then in the meantime, you know they’re going to keep on integrating the businesses in the meantime. They have to. Given the losses (both monetary and reputational) that Bank of America has already taken from the deal, the only real hope is that the merger works out and that they create that Financial Whole Foods Market that Citigroup (C) was never able to create. And though we doubt it will ever work out, as long as they don’t admit defeat, there’s always the faint possibility that it might. Once they stop the integration, it’s a pure loss. Inertia is a powerful force.

Beyond that, this stuff about “maximizing” the value of the asset sounds like pretty standard banker talk to us. In the end, the market’s not that dumb. If there’s value there, there’s value there. A spinoff of a standalone unit will do little to actually create value.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.