Merrill Lynch's Internet-based joint venture with HSBC Holdings plc of London, announced in April, won't involve brokers.
Given the working name of Merrill Lynch HSBC, the 50-50 joint venture is targeting investors with 100,000 dollars to 500,000 dollars in assets who want to bank and trade online.
"We'll augment our clicks with bricks--that is, physical offices in selected locations," Merrill Lynch Chairman and CEO David Komansky told reporters at a press conference. "And we'll back up our service with around-the-clock call centers doing business in the client's language of choice."
Merrill Lynch HSBC will be completely separate from Merrill's U.S. discount operation, Merrill Lynch Direct.
"Both of us [Merrill and HSBC] have such significant presence in the United States that the conflicts would have been very, very difficult to manage," Komansky said. "So Merrill Lynch Direct will function here in the U.S. ... and outside the U.S., this joint venture will be our virtual channel."
Win Smith, chairman of Merrill Lynch International, said the new firm would offer some type of referral opportunity for full-service advisers. Both partners will have "an opportunity to compete for the client base as [customers] grow in wealth and have more sophisticated needs," he said.
The joint venture will start later this year in the U.K., and then be rolled out to France, Germany, Japan, Canada and Australia. It will eventually be offered in 21 countries.
Komansky predicted the new firm would break even in four to five years and be profitable after that. "In Europe alone, we expect that online banking and investment accounts will grow at a compound annual rate of more than 60 percent , to more than 14 million accounts by the year 2004," he said.
Roberta Arena, group general manager for global e-business at HSBC, said increased equity investments by non-U.S. investors will drive growth. American investors have more than 40 percent of their assets in stocks, she said, but in the U.K. the number is around 20 percent and in continental Europe it's in the "low teens." Japan could be the greatest opportunity because only 8 percent of individuals' net worth is invested in equities, Arena said.