Buying FleetBoston Financial might fill out Bank of America’s branch network across the United States, but it would not fulfill the banking company’s Wall Street dreams. Although the expanded Bank ofAmerica would be almost three times as big as Citigroup in American consumer banking, it would still trail Citigroup in businesses like investment banking and money management. To move quickly intothe top ranks in those highly competitive and potentially lucrative services, Bank of America may have to make more acquisitions. The chief executive of Bank of America, Kenneth Lewis, has spoken ofmaking his bank more of a force in managing the investments of affluent Americans. He has said he would like that business to account for about 15 percent of the bank’s revenue.
Strategically, wealth management and asset management are areas that are very important to B of A because they are viewed as being more stable businesses, said Thomas McCandless, an analyst with Deutsche Bank in New York. Ken Lewis has told me and other investors that they really need a bigger presence in New York.
But those ambitions encountered some turbulence in September when regulators accused the bank of providing improper trading advantages to a hedge fund managed by a member of one of America’s wealthiest families. Since then, the bank has dismissed several employees and managers involved in dealings with the hedge fund Canary Capital Partners and its manager, Edward Stern, whose family controls Hartz Mountain Industries. The latest executive change in the money management unit became known on Monday when the bank said that Richard DeMartini, the president of the business and one of its highest-paid executives, would retire when the acquisition of Fleet was completed. DeMartini’s job would go to a Fleet executive, Brian Moynihan, the banks announced. A spokesman for Bank of America, Bob Stickler, said DeMartini would be leaving because of the merger, not because of investigations into the Canary case. DeMartini’s retirement would bring an abrupt end to a short but rewarding tenure at the bank, which he joined less than three years ago from a senior post at Morgan Stanley. Since then, DeMartini has received compensation valued by the bank at more than $20 million, according to proxy statements. Moynihan would inherit a big money management business in flux. The attorney general of New York State, Eliot Spitzer, is still investigating the bank’s involvement with Canary and other hedge funds suspected of trying to profit from quickly trading shares of mutual funds. Beyond the regulatory troubles, Moynihan would face the challenge of knitting together the money management businesses of the two banks. Each is itself an amalgamation, and neither has developed a strong brand name. Bank of America has been trying to integrate parts of several banks that it has acquired, while Fleet has been buying money management companies to build its operation, known as Columbia Management Group. Still, Fleet’s operation is considerably smaller, ranking 37th nationally in assets under management, compared with 17th for Bank of America’s unit, according to Institutional Investor magazine. Together, they would have $456 billion under management, ranking ninth, ahead of such well-regarded managers as Vanguard Group. But a disproportionate share of the assets at Bank of America is now in cash mostly in money market accounts, which traditionally earn much lower rates of return than stocks. The merged bank would have $20 billion less in stocks under management than Vanguard, according to Institutional Investor. Bank of America said the combined bank would derive about 25 percent of its revenue from corporate and investment banking. But it would still not rank among the leading underwriters of stock offerings or the leading advisers on mergers, two of the most profitable areas of investment banking. McCandless said it would not surprise him if, after digesting the purchase of Fleet, Bank of America made more acquisitions to accelerate its expansion into investment banking and asset management. For now, analysts said, Bank of America’s strongest position is as a lender to the so-called middle market small to medium-size companies. Peter Davis, managing director of Novantas, a financial services consulting firm in Manhattan, said investors should not discount the value of a strong national franchise in lending to that segment.
This gives them a big middle-market presence, Davis said. Fleet is not only the dominant retail player in the Northeast but the dominant middle-market bank in the Northeast.
The key to making such a high-priced acquisition pay off, Davis said, will be cross-selling the bank’s various products loans, credit cards, cash management services to its various corporate and individual customers. Bank of America’s brokers will need to sell their investment products and services to Fleet’s wealthiest customers as well, he said.
