Banking & Finance

Game-Changer: Will BofA-Merrill Lynch Consolidation Be Fought by Regulators?

There is a major development happening at Bank of America Corp. (NYSE: BAC). Bloomberg news has reported that Bank of America now is planning to dissolve its Merrill Lynch subsidiary. This is not exactly getting rid of the operations. To lower fees and expenses, the unit will be streamlined into the Bank of America operations. 24/7 Wall St.’s take on this is that many forces may emerge to prevent this consolidation.

This is a huge development, particularly with all the regulation that has been implemented and considering how much many politicians want to regulate depository banks versus other non-bank financial institutions. In fact, many investors have speculated that if things ever seriously picked up in the regulatory front, Bank of America actually could spin off Merrill Lynch.

This news would indicate that Bank of America does not expect future regulatory actions under Dodd-Frank, the Volcker Rule or even a refocus of bringing back more Glass-Steagall. In short, if Bank of America fully folds up Merrill Lynch into the bank, then it will be far more difficult to pry the brokerage and investment banking operations out from under the bank holding company umbrella.

Bloomberg’s report shows that this split could take place during the fourth quarter. CEO Brian Moynihan has tasked every department with cost controls, and this would be potentially a serious de-duplication of the bank’s operating and regulatory costs.

We will see if this effort gets blocked by or gets the green light from regulators. Our first instinct would be to doubt that regulators would easily agree to this. We also expect that some of the more blood-hungry and anti-bank politicians and watch groups may want to challenge this effort as well.

Stay tuned. This is potentially game-changing for Bank of America (and Merrill Lynch), and again we expect that some (or many) will want to challenge this effort. Bank of America shares were up 0.8% at $14.44 in late-morning trading, against a 52-week range of $7.83 to $15.03.