Letting the numbers speak for themselves, Bank of America Corp. has sent a message to anyone still disgruntled over its $29.1 billion purchase of Merrill Lynch & Co. And that message is: "I told you so."

B of A's investment banking, sales and trading, and wealth management businesses — areas that got a boost from the January 2009 Merrill deal — have provided the rare bright spots in the still-struggling bank's recent quarterly results.

Not to say the past two years, four months and two days have been smooth. But many analysts call the seemingly star-crossed union a success, even accounting for the difficulty in determining how much the storied Wall Street firm's legacy assets are contributing to companywide profit, given its integration with other operations.

Without Merrill, B of A would be a very different company — and worse off for it, they say.

Merrill "really gives B of A what they would desperately be missing right now, and that's the global markets," said Jeff Harte, an analyst at Sandler O'Neill and Partners. "Merrill Lynch really does bring in some of the international capital markets that are doing OK in this operating environment."

Within the global banking and markets division, investment banking income jumped 24% from the first quarter of last year, to $1.51 billion. Sales and trading revenue, though down sharply from a year earlier when results were strong industrywide, nearly doubled from the fourth quarter, to $4.9 billion.

And the only one of B of A's six business divisions to report increased revenue year over year in the first quarter was the wealth and investment management division, the unit that includes Merrill's "thundering herd" of brokers. Its revenue rose 11%, to $4.49 billion.

Bank of America would not provide executives for interviews, but a spokesman said the global banking and markets and global wealth and investment management divisions "no doubt … contributed in a meaningful way to Bank of America's overall performance" in the first quarter.

"From a financial standpoint, the numbers show that the acquisition is doing exactly as we intended it to," he said.


Against the bitter backlash to the deal from investors and the public, Bank of America argued that the Merrill acquisition (as well as its purchase of troubled mortgage lender Countrywide Financial Corp.) would pay off in due time.

"I am confident history will show our actions in operating and building Bank of America positioned us for future success," then-Chief Executive Kenneth D. Lewis said in November 2009, shortly before he handed the reins to CEO Brian Moynihan.

It was a message that fell on deaf ears. The early days of the acquisition were marred by investor claims that B of A withheld pertinent information about Merrill's mounting losses and executive bonuses.

There were also questions — and subsequent congressional hearings — over whether B of A tried to back out of the deal, was pressured into it by the government, and knowingly put taxpayer dollars at risk, since the government agreed to chip in $20 billion to support the acquisition.

For many market watchers, though, these issues were simply a noisy distraction.

"It grabbed a lot of headline news originally, but none of that really had anything to do with whether it was going to be a successful acquisition," said Marty Mosby, a managing director at Guggenheim Securities LLC. "A lot of the initial things we saw as hiccups or bumps in the road were really just part of the transition."

Some of the Merrill-related matters have been settled. In February of 2010, the bank won court approval of a $150 million payout to settle claims by the Securities and Exchange Commission that B of A misled investors in the deal. (But that same month, then-New York Attorney General Andrew Cuomo sued Lewis and former Chief Financial Officer Joe Price. That suit, which accuses the executives of misleading investors, is still pending.)

But the legal risks are not all gone. The company is still embroiled in a number of lawsuits in both state and federal courts related to the acquisition. The claims against the bank and certain of its current and former officers and directors concern a number of matters ranging from the due diligence the bank conducted and the agreement that Merrill Lynch could pay up to $5.8 billion of bonuses to its employees.

The bigger issue for analysts has been how well B of A would be able to meld two disparate cultures, and that seems to be going smoothly.

"The merger always made sense on paper," Harte said. "It was a matter of whether they could swing the integration and whether they could get through the crisis from a capital perspective without having to damage the franchise to do that. And at this point the answer is yes to both. It's more impressive to me how the integration's gone. It seems my concerns about investment bankers or traders leaving has really diminished to the point where I'm not really that worried anymore."

B of A has placed oversight of the Merrill integration largely in the hands of two established Wall Street professionals: Thomas Montag and Sallie Krawcheck.

Montag came from Merrill Lynch, where he served as executive vice president and head of global sales and trading. Before joining Merrill in 2008, he spent 22 years at Goldman Sachs Group Inc. where he held a number of key executive roles, including co-head of the global securities business.

Krawcheck came on board in August 2009 to lead the global wealth and investment management unit, a position she previously held at Citigroup Inc. Krawcheck also had stints as that bank's chief financial officer and head of the Smith Barney brokerage before her exit from Citi in late 2008.


In March, at the bank's first investor day conference in four years, Montag and Krawcheck offered upbeat assessments of the integration of the Merrill businesses, but sought to focus the conversation on the future, stressing the immense cross-selling opportunities their units present.

Case in point: two of every three Merrill Lynch wealth management clients have outside bank accounts, Krawcheck said, that potentially could become B of A accounts.

Montag, in particular, sees an opportunity to build the international portion of his business. In 2010, the global banking and markets unit made 900 international hires.

Still, there has been plenty of shuffling of executives in both units. However, the bank maintains that attrition rates among financial advisers have been at near-historic lows.

Mosby said the dismal economic conditions at the time of the merger may have worked in B of A's favor, limiting the defection chances of Merrill employees.

"With the financial crisis that was out there your options were limited. It wasn't a period of time that was easy to just shift around," Mosby said. Bank of America officials "had a couple years to get their footing before they came under pressure from the risk of having people move on. … In my mind, the environment was perfect for this type of acquisition."

In the period ended March 31, the total number of client-facing professionals in the wealth management unit grew for a seventh consecutive quarter, totaling 20,273, up 3.6% from a year earlier. That included more than 15,600 Merrill Lynch financial advisers.

Their average productivity, defined as annualized total revenue divided by total number of financial advisers, increased 15% year over year, to $931,000.

Still, some believe it's too soon to say with certainty that the Merrill acquisition is working out.

"My sense is the jury is going to be out for a couple of years on this mostly because the jury is out on B of A overall," said Bert Ely, an independent banking consultant based in Alexandria, Va. "Call me in two years, three months and five days, and I'll tell you where they stand."


Paul Miller, who follows the company at FBR Capital Markets, isn't convinced, either, mainly because he says the numbers do not paint a clear enough picture.

"It's very difficult to back out the expense basis associated with those revenues," he said. "What you don't know is the profitability. You don't know what Merrill Lynch brought to the table. It brought higher revenues, yes. But has it brought higher profitability? That is still up in the air."

He added: "You can never trust segment analysis, because it's manipulated. … They don't give you enough information. They don't give you a straight-up P&L statement across the board."

Yet most analysts agree that the wild card lies in the other big acquisition B of A made right before the financial crisis hit. The mortgage-related woes stemming from the Countrywide business — the numerous ongoing lawsuits, mounting foreclosures and a pending settlement with regulators over faulty servicing practices — continue to hang over the bank's head.

"The Countrywide acquisition is taking away all the positives from the Merrill acquisition," Mosby said. "It's almost a wash between the two. … If they just got Merrill and not Countrywide, they'd be singing hallelujah. The issue is they bought two distressed properties. One is working, and one is not."

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