While pundits and industry insiders laud the acquisition of New York-based Merrill Lynch & Co. Inc. by Bank of America Corp. of Charlotte, N.C., there might be fallout few have thought about.
Bank of America Corp. has almost $211 billion in client brokerage assets, much of it under custody with National Financial Services LLC of Boston.
The bank’s acquisition of Merrill Lynch provides them with a self-clearing custodian and presents the bank the opportunity to cut what could amount to significant costs by putting those assets with what will become its Merrill Lynch unit.
“Bank of America has said they want to cut $7 billion in expenses over the next five years, and moving those assets to Merrill is one way to do it,” said Sean Cunniff, research director for brokerage and wealth management at TowerGroup, a Needham, Mass., consulting firm.
He added that Bank of America has a contract with National Financial, so that will actually dictate how soon the move could occur.
“It’s one aspect of a much larger relationship, though,” Mr. Cunniff said.
For instance, Bank of America also has a relationship with parts of Boston-based Fidelity Investments (National Financial’s parent company) for outsourcing of some of their human resources functions and employee 401(k) programs, among other things.
Larry Tabb, a consultant to institutional firms and the founder of Tabb Group LLC in Westborough, Mass., said that such a move would be far from instantaneous, comparing the situation with that of the 1998 formation of New York-based Citigroup Inc. from Citicorp Inc. and Travelers Group Inc. (which included Salomon Smith Barney Holdings Inc.).
“It will take time. It’s not going to happen tomorrow. But it is something for them [National Financial] to worry about.”
Representatives from Bank of America, Merrill Lynch, and National Financial declined to comment.
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