By Winokur, Cheryl
American Banker , Vol. 165, No. 76
An online joint venture announced Tuesday between Merrill Lynch & Co. and HSBC Holdings PLC gives HSBC a critical new plank in its Internet expansion effort and thrusts Merrill into direct competition with banks worldwide for retail customer business on just about every level.
The companies plan to inject up to $1 billion over five years into the new company, to be named Merrill Lynch HSBC. Its primary mission will be to attract new customers among high-net-worth investors outside the United States.
The venture, which will offer banking and brokerage services, "will be able to serve customers in more markets more quickly and more effectively than either of us could alone," said David H. Komansky, chairman and chief executive of Merrill Lynch.
The partnership, which the companies are touting as the first of its kind, gives HSBC yet another avenue to increase its wealth management business. It has buttressed this business through a series of deals such as its purchase last year of Republic New York Corp.
HSBC, along with Deutsche Bank AG and some other major European banking companies, has been leading the drive to use the Internet, rather than branches, to expand retail operations.
A spokeswoman said HSBC is not moving away from bricks and mortar but is giving people who prefer to bank and invest online an option. HSBC will continue to offer InvestDirect, an online brokerage for customers in the United Kingdom and Canada and online banking for customers in the United Kingdom.
A Merrill spokesman said the company approached HSBC this year as a way to tap the huge potential online investing boasts outside the United States.
"We have already in the United States a considerable amount of offerings that one would associate with a commercial bank, so there was not much gain for us doing anything here in the United States beyond what we already have," he said.
Though small in financial terms, "in the chess match of strategic maneuvering as it relates to delivery of Internet financial services, I think it is a big move," said Dean Eberling, a senior vice president who covers Merrill for Keefe, Bruyette & Woods Inc.
Cross-border deals are gaining popularity among financial services companies looking to expand beyond home turf. Last week, Chase Manhattan Corp. announced a deal to buy Robert Fleming Holdings Ltd. of London. In October, Allianz AG said it would buy majority ownership of PIMCO Advisors. Citigroup Inc. also recently signed a deal to buy U.K. investment firm Schroders.
Though the venture spurred talk among Wall Street traders that a deeper alliance between HSBC and Merrill might be in the works, the two companies played down that notion. …