Analysis: Krawcheck ouster fuels Merrill brokers' bank angst
Bank of America's ouster of Sallie Krawcheck has deprived Merrill Lynch advisers of a vocal advocate and revived worries the commercial banking giant will further tighten its grip on the brokerage.
The Krawcheck era at Merrill ended on Tuesday after two years when the bank's Chief Executive Brian Moynihan announced commercial banking head David Darnell would take overall consumer businesses, including branch banking, mortgages, Merrill and the U.S. Trust private banking unit.
Analysts, recruiters and some Merrill advisers said Krawcheck, 46, deserved high grades for juggling the demands of bank executives who wanted to increase broker sales of loans and other banking products against complaints from advisers opposed to such sales.
Now, though, Krawcheck's departure could signal that cross-selling efforts will only increase under Darnell, a veteran commercial banker based in Charlotte, North Carolina. Krawcheck was based in New York.
Sallie Krawcheck came from the brokerage industry and she understood the advisers. There may be no great love lost for Sallie, personally, but advisers would rather have her than a bank person, said recruiter Mindy Diamond of Diamond Consultants in Chester, New Jersey.
Bank of America has long coveted Merrill precisely because its more than 16,000 advisers can sell the bank to brokerage customers and also generate business leads for its commercial and consumer bankers. Even as these sales helped make Merrill brokers the industry's most productive, there was grumbling.
Recruiters and analysts said many brokers are unsettled by the reorganization, which replaces an executive who understood wealth management with a banker having almost no experience with retail brokerage experience.
Bank of America is a command and control, centrally operated business, said Brad Hintz, a Sanford C. Bernstein brokerage analyst who was hired by Krawcheck when she was Bernstein's head of research.
That style of management does not work well with advisers, who tend to be entrepreneurial, analysts said.
The reality is the clients belong to the brokers. They are rightfully reluctant to pass their relationships over to an institution, Hintz said.
To ease such concerns, Darnell on Wednesday hosted a conference call with Merrill managers in which he voiced strong support for Merrill Lynch U.S. wealth management head John Thiel and Krawcheck's other lieutenants.
Darnell also insisted Merrill will retain its unique culture and compensation plan, a spokeswoman said.
POLITICAL DECISION?
Some brokers nevertheless questioned why Krawcheck would be elbowed out when the wealth management division was profitable and producing strong results even as the parent company was losing money. In the first half, global wealth management net income rose 35 percent from a year earlier to $1.04 billion. Bank of America had a $6.8 billion net loss in that period.
It's a disappointing decision, said one top producer at Merrill, who requested anonymity because he is not authorized to speak with the press. Merrill's numbers are great, morale has improved, and Sallie has been client-focused and F.A.-friendly. To me it was a political decision.
Client assets and revenue have climbed since Krawcheck arrived in August 2009, after being having been ousted from Citigroup Inc
Merrill has been outperforming its arch-rival, Morgan Stanley Smith Barney
Another indication of Krawcheck's success: Merrill's ranks of financial advisers as of June 30 surpassed 16,000 for the first time since the January 2009 takeover. Most rivals, namely Morgan Stanley, have seen their ranks shrink.
Several observers said the departure of Krawcheck is unlikely to have much impact on the day-to-day business of advisers. Darnell will have his hands full fixing BofA's mortgage woes and paring back a sprawling retail bank network.
I don't see the focus on wealth management changing in any way, said Courtney Raymond, whose self-named Houston firm recruits brokers for Merrill.
The reorganization is, however, likely to mean big changes for Thiel, a long-time Merrill private banker promoted by Krawcheck in May to lead Merrill's army of U.S. brokers. Recruiters and analysts said Thiel will need to increase his public profile and help rally the troops.
Darnell also is under gun, since retention packages given to brokers when Bank of America bought Merrill in January 2009 are coming to end for many of them in January. Once payments are made, recruiters say, advisers will feel free to move.
(Reporting by Joseph A. Giannone; Editing by Jed Horowitz and Walden Siew)
© Copyright Thomson Reuters 2024. All rights reserved.