Merrill Lynch, on the prowl for strategic acquisitions, may look overseas for its next purchase in an effort to bolster its wealth-management business.
“We have a number of conversations going on around the world with people in markets we’re interested in,'’ said Robert McCann, vice chairman and head of the Merrill’s global private-client group at a press breakfast on Tuesday. He told reporters that its $1.5 trillion brokerage arm took in 11 percent of its 2005 revenue from outside the U.S., and that it will continue to look for opportunities overseas.
His comments came as Merrill Lynch and consulting firm Capgemini released their 10th annual World Wealth Report. The 2006 edition showed a significant rise in the number of high-net-worth individuals—those with more than $1 million in liquid assets—in countries like India, Russia and South Korea. The high-net-worth population grew most dramatically in South Korea, up 21 percent, whereas India rose 19 percent and Russia rose 17 percent. South Africa also experienced a decent pop in its high-net-worth demographic, rising nearly 16 percent.
M&A chatter has become quite noisy in recent months, with some industry insiders speculating that Merrill would buy a bank or a mortgage lender before the end of the year. In May, Merrill CEO Stanley O’Neal told analysts that the firm could purchase a consumer bank as part of a strategy to make his firm’s retail-brokerage operation more attractive to small business owners.
In a conversation with Morgan Stanley analyst Chris Meyer, O’Neal said that in order to remain competitive in the wealth-management business for the long haul, the firm may need to have more “meaningful banking capabilities” to keep pace with client demand. A retail bank could provide the answer, he says.
“Business owners that have created significant wealth require cash-management, small business lending and transaction capabilities from their financial-service providers,” Meyer wrote in a research note to clients. “[Merrill] believes that if they were to bolt on a bank, it would deepen the relationship with their client—many of whom are already wealth-management clients.”
But O’Neal is reluctant to rush ahead, Meyer says. O’Neal plans to explore all options, including the possibility of buying a mortgage company in an effort to emulate Lehman Brothers’ vertically integrated mortgage product. He did, however, rule out the possibility of purchasing a trust bank because they’re too expensive and they wouldn’t provide the cash-management capability that a consumer bank would. Plus, Merrill has a lot of the trust functionality already.
A Merrill spokesman declined to comment.
Meyer’s prediction is that Merrill would be interested in buying a bank that has some retail deposits and a market cap of roughly $5 billion. Says the analyst: “Big enough to make a difference but small enough so as not to change the earnings profile of the company.”