By Rachel Louise Ensign and Liz Hoffman
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 15, 2018).
Bank of America Corp.'s purchase of Merrill Lynch & Co.,
struck on the panic-filled 2008 weekend that Lehman Brothers
failed, was supposed to make the lender a top-flight global
investment bank.
A decade later, the bank is struggling to make good on that
promise. Bank of America has failed to capture the benefits of a
deal-making boom that has lifted its Wall Street rivals. Its
overall investment-banking revenue in the first nine months of this
year is roughly flat compared with the same period in 2010,
compared with an average increase of more than 50% at U.S. peers
including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Bank of America makes far more on service charges such as
overdraft fees than from merger and underwriting work, and the
investment bank has never contributed more than 7% of the company's
overall revenue.
Chief Executive Brian Moynihan instead has found success with
the Main Street businesses of retail deposits and business loans,
pursuing a strategy of "responsible growth" with "no excuses" that
values stability over swagger. That playbook has won over investors
including Warren Buffett, the bank's biggest shareholder and a
vocal cheerleader of Mr. Moynihan's.
Bank executives say they want to improve in investment banking.
"We want to be in the top three, and based on our relationships and
platform there's no reason we shouldn't be," Chief Operating
Officer Tom Montag said in a statement. "It's about keeping our eye
on the ball."
The bank historically has relied on the power of its national
brand and deep lending relationships to drum up business, rather
than cultivating a culture of superstar rainmakers. Many current
and former executives say the bank hasn't filled important roles
with bankers who have top relationships and visit clients with the
intensity needed to beat formidable competitors.
Some of those executives also say the bank's conservative
approach has handcuffed the firm's investment bankers, highly paid
professionals who pitch big companies and governments on mergers
and securities offerings. Bank of America has, for instance, shied
away from clients deemed to carry reputational risks that other
banks are willing to take on.
The firm has grown more gun-shy after disclosing a $292 million
loss earlier this year on a loan to the then-chairman of troubled
South African firm Steinhoff International Holdings NV. Lead
independent director Jack Bovender told a trade publication that
executives responsible for the deal were "taken to the
woodshed."
In July, after the bank reported lower investment-banking
revenue, Mr. Moynihan said on a call with analysts that the M&A
team "knows they can do a better job and are after it." He blamed
bad luck, too. The bank has worked on some big deals that fell
apart such as Comcast Corp.'s bid for 21st Century Fox assets.
It was Mr. Moynihan's predecessor, Kenneth Lewis, who signed the
deal to buy Merrill when it was flailing. The union, executives
said, would create a balanced behemoth, marrying Bank of America's
ready supply of capital with the deals that Merrill's white-shoe
bankers would gin up. Bank of America also would gain a "thundering
herd" of financial advisers and its sales and trading desks.
The agreement made Bank of America a hero as other financial
firms collapsed. But Merrill's eat-what-you-kill power brokers
chafed at the merger with the Southern consumer bank. Senior
bankers, used to freewheeling autonomy, were asked in ensuing years
to carefully track their meetings. Executives were instructed to
read employees' emails to check for compliance violations, people
familiar with the matter said.
Mr. Moynihan, a low-key lawyer by trade known for being a
workhorse, became CEO in 2010. The business was a bright spot early
in his tenure, when the bank was dealing with big consumer loan
losses. From 2010 to 2013, the firm's investment-banking revenue
rose 13%.
Now, however, in a sector filled with competition-obsessed
masters of the universe, Bank of America's rankings are slipping.
It is eighth in U.S. merger revenue this year, behind Jefferies
Financial Group LLC and Barclays PLC, according to Dealogic. It
also has slipped in debt businesses it has dominated for years.
Twenty-eight managing directors have left the investment bank
for competitors since the beginning of 2017, according to a report
by recruiting firm Sheffield Haworth. Only Deutsche Bank AG has
seen more departures at that level. A Bank of America spokeswoman
said the bank has made 49 managing-director hires over that
period.
Christian Meissner, who oversees investment banking as well as
corporate banking, will leave at the end of this year, the bank
announced in September. He will be succeeded by Matthew Koder, the
bank's Asia-Pacific president. Mr. Koder has told colleagues he is
drawing up a plan to improve the unit's performance.
The firm's conservative approach has meant tighter constraints
for the investment bankers. They were barred from business with
subprime lenders, even for assignments that wouldn't give Bank of
America much exposure to the underlying loans, according to people
familiar with the matter. Bankers grumbled that Mr. Moynihan, who
lives outside Boston, seemed less interested in getting personally
involved in deals than his counterparts at JPMorgan or Goldman
Sachs.
In late 2012, for instance, Bank of America was vying for a role
on Dell Inc.'s $24 billion buyout. JPMorgan CEO James Dimon was
personally involved in lobbying for the business. Senior bankers
asked Mr. Moynihan to do the same but at a key point he didn't,
according to people familiar with the matter. JPMorgan got a
marquee assignment advising Dell's directors. Bank of America won a
part of the financing, which it split with three other firms.
"Brian engages with hundreds of clients throughout the year," a
bank spokeswoman said.
Tensions flared in late 2015 when Mr. Meissner proposed
coleading a EUR20 billion loan to Volkswagen AG, which needed cash
to help weather its emissions-testing scandal. Mr. Moynihan pushed
back, arguing that backing the car maker would damage Bank of
America's reputation, according to people familiar with the matter.
The firm instead took a second-tier role in the deal, which was led
by Citigroup Inc. and other global banks.
Unlike other top executives, including Bank of America's head of
human resources, Mr. Meissner didn't have ready access to the
firm's private planes. That was because he didn't report directly
to Mr. Moynihan, but to Mr. Montag.
In 2016, one of Mr. Meissner's top deputies, Diego De Giorgi,
took the podium at an annual New York meeting and urged bankers to
be "sharks" in pursuit of business. At the time, the bank had
slipped from second to third in investment banking revenue.
This year, it is No. 4.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Liz
Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
October 15, 2018 02:47 ET (06:47 GMT)
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