At Goldman Sachs financial services conference last month, Merrill Lynch CEO David Komansky reiterated the firm’s retail strategy and quashed rumors of a merger with HBSC Holdings.
“Segmentation is the key to accumulating market share and increasing service,” Komansky told the assembled analysts. The firm is focusing on the ultra-high-net-worth market, which represents over $1 trillion of assets, he said. “We’ve begun a nationwide process to enroll [small accounts] in our Financial Advisory Center [call centers]. The service enhancement [from the call centers] has been well-received by clients and brokers alike.” The firm will move 500,000 accounts to the call centers this year.
Retail reps increasingly like fee business, Komansky added. He is pursuing the same strategy on the banking side as well where Merrill wants a “stable stream of interest- and fee-based revenue.”
Komansky acknowledged that decimalization has hurt the margins in its market-making business. “That was not totally unexpected. I was not totally supportive of decimalization, frankly.”
The Merrill CEO was also quizzed about the firm’s money-losing Japanese operations. “That business has certainly been challenging. We’ve been frustrated by the lack of structural reform.” Nevertheless, Komansky predicted Merrill would be breaking even in Japan by 2003.
Komansky shot down any rumors that Merrill might merge with HBSC Holdings, which circulated after an interview with CNBC’s Maria Bartiromo. “When you get interviewed by Maria Bartiromo, there’s no telling what’s gonna come out of your mouth,” he said to laughter. Komansky did say that an HBSC deal might be a good fit, “But I said clearly and emphatically that we saw no need for a combination of any sort. Never, ever have we had one word of conversation with HBSC” about a merger, Komansky said. “Until we see a way to add more value with a merger, we will remain independent.”
The Merrill chief was also asked about investigations into how firms allocate IPOs. Allegations have surfaced that hot deals are given to institutional customers who essentially pay bribes via soft dollars. “There is no reason to think Merrill Lynch is involved,” Komansky said. “A situation like that reflects poorly on our industry and personally, I am very very hawkish on the enforcement side of these issues. Time and again our industry falls prey to these stupidities. ... It reflects poorly on everyone in the industry.”
For the full Webcast of Komansky’s speech and responses, see http://www.ml.com/about/exec_speeches_ml/05092001-1_premium_execution_ec.htm
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