Merrill Lynch: Back Sliding?

Just a few months ago, working for Merrill Lynch was the pinnacle of achievement for many in the Merrill herd: Eighty percent of Broker Report Card respondents from Merrill said their firm was the best in the business. Only Edward Jones, where advisors are so fiercely loyal that it has become the butt of industry jokes, scored higher on this scale (94 percent). Even now after a near-death experience,

Just a few months ago, working for Merrill Lynch was the pinnacle of achievement for many in the Merrill herd: Eighty percent of Broker Report Card respondents from Merrill said their firm was the best in the business. Only Edward Jones, where advisors are so fiercely loyal that it has become the butt of industry jokes, scored higher on this scale (94 percent).

Even now — after a near-death experience, a rescue and a retention brouhaha — many top Merrill advisors think they've got the best seat on the planet. “We're really lucky. There's nothing to be negative about,” says one top Merrill producer. He's getting a check for nearly $10 million to stay put. But plenty of advisors have already walked, gladly picking up fat recruiting offers from UBS, Morgan Stanley and Citigroup. How many is tough to calculate. “People are leaving for economic reasons. They're out of money,” says a Merrill advisor in the Northeast. As for the retention package: Not only did many advisors want more cash, they worried about a clause that gives BofA ownership of their clients. BofA has offered to sign the Broker Protocol, but has not yet. As of the November 14 deadline, some 97 percent of those advisors who were eligible for a retention bonus (a little over half of all FAs) had signed BofA's offer agreement. But even Merrill execs say that doesn't mean they'll stay for good.

What does the future look like? BofA has a spotty record on cultural integration in past deals, says Brad Hintz of Sanford Bernstein. Hintz fears BofA will try to run Merrill's retail operation as an extension of the branch network, driving many Merrill advisors to choose the RIA route. Recruiter Danny Sarch of Leitner Sarch Consultants says advisors can expect layoffs and cutbacks in product support. “The environment is horrible,” says one advisor. “I don't know that it has anything to do with Bank of America. Costs are going to be cut.”

Merrill/BofA at a Glance

Company scapegoat: Stan O'Neal

Share price performance: 11/20/08 price, 52-wk range:
MER: $7.96, $7.08 - $63.11
BofA: $11.25, $10.01 - $47.00

Q3 net client assets, % growth (decline) vs. 07:

MER= $1.475 tn, (16.3%)

BofA (PB&I brokerage)= $196 bn, (10%)

Q3 advisors, % growth (decline) vs. 07:
MER= 16,850, 1.4%
BofA (PB&I brokerage) = 5,500, 1.9%

Performance of retail unit (Q1-Q3 2008):
Revenues: MER= $10.2 bn, PB&I= $2.4 bn
Pre-tax income: MER= $2.1 bn, PB&I=$608 mn
Profit margins: MER=20.4%, PB&I=16%

Performance of private bank (Q1-Q3 2008):
Bankers: MER=300, BofA (U.S. Trust)=3,747
Revenue: MER=N/A*, BofA (U.S. Trust)=$2.01 bn
Pre-tax income: MER= N/A*, BofA (U.S. Trust)=$339 mn

Write-downs (cumulative, Q3):
MER= $52.2 bn, BofA= $21.2 bn

Bank deposits:
MER= $90 bn, BofA= $874 bn

Bank branches (combined entity): 6,100

*Merrill does not break out #s for its private bank, which is part of the Global Wealth Management unit.

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