Merrill aims products at Europe’s ultra rich
The closure of some European operations is part of Merrill Lynch’s emphasis on cost reduction and product sales, but clients also require long-term commitment.
Merrill Lynch, which recently pulled out of the German onshore private banking market, recently announced record quarterly earnings. Crucially, it is these cuts and efficiency measures, part of an ongoing reorganisation, which are driving the bank’s performance.
This follows on from 2003, which was the best year in Merrill’s history. The changing face of the organisation means that the Global Private Clients division and Merrill Lynch Investment Management, rebuilt since the damaging Unilever case in London’s High Court, now match capital markets and investment banking in terms of business size.
However, it is pre-tax margins which are the main concern of Stan O’Neal, Merrill’s chief executive officer. At 39 per cent, capital markets enjoy twice the margin of wealth management. Now Mr O’Neal wants to balance this.
Re-balancing margins
This is not as much an uphill struggle as it might seem. With $840bn (e710bn) in private client accounts, Merrill is ranked second behind UBS among global private banks by the Scorpio Partnership. Apparently, just $100bn of this money comes from European clients. This is where Merrill needs to concentrate, as total wealth in Europe grew annually by 47 per cent, according to Merrill, against an actual decrease in the US.
Merrill’s figures also show that private client accounts are 25 per cent larger in Europe than the US.
On the surface, through closing operations in Rome and Barcelona and selling the Munich and Frankfurt businesses to UBS due to problems dealing with over-zealous German regulators, Merrill seems to be drawing away from Europe. But in reality this is part of the bank’s move away from the mass affluent business towards the more lucrative high net worth and ultra net worth segment.
Ask Ausaf Abbas, managing director for EMEA region for global private clients at Merrill Lynch why people come to his bank, and he is refreshingly honest. It is not due to some outdated notion of personal service. It is due to products and bringing capital markets solutions into wealth management.
UBS kindly picked up the pieces in Germany, and any gathering of Merrill bankers still takes a strong interest in the Teutonic market. Mr O’Neal has asked them to leave the door to Frankfurt slightly ajar.
But how strong is his commitment to wealth management in the long-term? To clients, the length of a bank’s strategic attention span clearly outweighs pre-tax margins.
