Economic crisis? Merrill Lynch cried bully on that. The Wall Street institution with the iconic bull logo is now the wealth management, brokerage, and investment banking arm of Bank of America. The retail banking giant acquired the distressed investment bank in 2009 in a move that greatly expanded its wealth management and international operations. Merrill Lynch is among the world's top brokerages, with some $2.2 trillion in customer assets. The company also provides corporate finance, investment banking, and research services to institutional, commercial, and government clients. Merrill Lynch has offices in some 40 countries around the world.
Merrill Lynch's revenues fell some 12% between 2010 and 2011, and the company reported a net loss of $1.7 billion. Its interest revenues were down from $9.3 billion in 2010 to approximately $8 billion in 2011. Also hit hard were the company's principal transaction activities revenues (related to its trading activities), which went from $7.1 billion to some $5.9 billion. These declines were partially offset by growth in fee-based revenues from its global wealth management business.
In addition to the overall economic malaise, the company's performance has been impacted by recently passed financial reforms that limit earnings and raise operating costs for financial services firms. As a result of the Volcker Rule section of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which limits proprietary trading activities of commercial banks, Merrill Lynch exited its stand-alone proprietary trading business in 2011.
Merrill Lynch in 2009 agreed to pay some $475 billion to settle a class-action lawsuit by the State Teachers Retirement System of Ohio regarding Merrill's accounting of some subprime mortgage investments. In late 2011 Merrill Lynch faced another setback when it agreed to pay $315 million to settle another lawsuit over the questionable marketing of its mortgage-backed securities. The settlement was the largest yet of a securities class-action case dealing with non-government-backed mortgage-backed securities.
The company has lost a handful of wealth managers since the Bank of America acquisition. The reasons have varied, from having to deal with the even-bigger bureaucracy of a giant bank to having to cross-sell banking products. As a result, the company has lost billions in client assets as its money managers jumped ship and went with other firms.
However, Bank of America plans to further expand its global wealth operations, primarily into small emerging nations. It sees opportunity in the growing number of über-wealthy individuals and families around the world. One area of particular interest is the Asia/Pacific region, which has nearly as many high-net-worth persons as the US.
Bank of America acquired Merrill Lynch in a government-endorsed deal during one of the bleakest periods in US economic history. Hoping to avoid a collapse of Merrill Lynch and whatever debilitating ripple effects that would have on the economy, the US government encouraged Bank of America to buy the troubled company for some $50 billion in stock. Since the acquisition closed, Bank of America has absorbed Merrill Lynch's banking operations, while Merrill Lynch has absorbed Bank of America's investment banking and brokerage units, including Banc of America Securities and Banc of America Investment Services. As Bank of America and Merrill Lynch wind up their merger, they are expected to cut more staff, which will create some compensation expenses.
The acquisition also brought Merrill Lynch's 49% stake in asset management giant BlackRock. That ownership was diluted to around 34% the following year when BlackRock acquired Barclays Global Investors from Barclays. As part of Bank of America's recent spate of selling off assets, the company further reduced that stake over time and, in mid-2011, it divested its remaining 7% holding in BlackRock. Merrill Lynch reported pre-tax gains of approximately $460 million on the sales. – less