It would be one of the most amazing about faces in the history of American business. We’re talking about the recent chatter that Bank of America might eventually take Merrill Lynch public.
That’s right. After nearly the merger with Merrill nearly sank Bank of America and saddled it with shocking losses, there’s now speculation that Bank of America could spin-off the legendary brokerage. The speculation got a boost when Bill Smith, CEO of SAM Advisors, suggested in a CNBC interview on Friday that BofA may IPO Merrill Lynch down the road.
There are a bunch of reasons Bank of America might want to spin-off Merrill. The Deal runs through several:
- The Death Of The Financial Super-Market. Investors may have lost confidence in the financial supermarket, and regulators seem to be taking a dim view of the model. The desire to alleviate systemic risk from a single firm may result in the government seeking to break-up some giants, particularly those that don’t seem to be run very well. Risk management professionals are sceptical that any bank as large as Bank of America can be run properly. Even if JP Morgan Chase seems to make it work, it’s not clear that anyone else can.
- Culture Wars. Efforts to integrate BofA and Merrill seem to be stalling. The firms have yet to integrate their brokerage and investment banking businesses. Without this integration, there’s not much savings that can be achieved by having the two firms under one corporate roof. Synergies and all that stuff go out the window.
- The Flight Of Talent. Not a week goes by without hearing about high-level defections from Merrill. The promise of becoming an independent firm once again might persuade some top brokers and bankers to stay on board.
The Deal’ Maria Woehr interviews Getzler Henrich’s Dino Mauricio, who leads the firm’s M&A Integration practice, who doesn’t think the idea is so far-fetched. Here’s what he says:
“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.”
We’ll add one more point: in two years, we expect that Bank of America CEO Ken Lewis will be history. This will give the new management room to “correct” Lewis’s catastrophic decision to acquire Merrill. Lewis’ ego will no doubt require him to continue to pursue the integration. But once he’s gone, the rules change.
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