Magazine article American Banker

Merrill's Retail Banking Strategy Seen Paying Off

Magazine article American Banker

Merrill's Retail Banking Strategy Seen Paying Off

Article excerpt

Merrill Lynch & Co. Inc.'s recent cost-cutting measures and the expansion of its banking strategy appear to have impressed investors, who have helped its shares outperform those of some other brokerages, as well as the broad market, this year.

On Wednesday, a day after she met with Ahmass Fakahany, Merrill's chief financial officer, and Dow Kim, its head of global debt markets, Lauren Smith, an analyst at Keefe, Bruyette & Woods Inc., said that she is impressed with Merrill's potential;

However, Ms. Smith also reiterated her "market perform" rating for the stock and said its fundamentals "remain tenuous." The risks of civil litigation related to alleged conflicts of interest between investment banking and equity research remains unquantifiable, she said. Merrill was the first company regulators targeted last year over the alleged conflicts.

Still, its management has decided "to turn the ship around and focus on profitability," instead of market share, by beefing up its banking services, Ms. Smith said.

In January, Merrill launched its Beyond Banking retail strategy, which directly targets competitors' deposits. The strategy, which broadened Merrill's banking powers, is one of the ways it is trying to diversify revenues away from an unreliable equity market. It was launched after several quarters of cost-cutting, which has also paid dividends. In April it reported its fourth consecutive quarterly earnings increase -- profits rose 6%, to $647 million.

Merrill is a formidable deposit gatherer and a significant player in mortgage banking. It offers small-business and middle-market lending and is looking to launch a consumer credit card. …

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