Magazine article American Banker

Some See Merrill Lynch Holding on to Fund Unit

Magazine article American Banker

Some See Merrill Lynch Holding on to Fund Unit

Article excerpt

Merrill Lynch & Co. and others will probably explore options aside from outright sales of their fund businesses to deal with closer regulatory scrutiny of the $7.5 trillion mutual fund industry, an analyst says.

Richard X. Bove, an equity analyst at the San Francisco firm Hoefer & Arnett, wrote in a research note published Monday that Merrill and other companies that distribute their own mutual funds through vast brokerage networks may pursue joint marketing ventures or outsource their processing to third parties such as State Street Corp. or Bank of New York Co., or join forces to create companies to provide processing for a group of Wall Street firms.

"Why not get rid of the whole back-office processing and just run the money?" Mr. Bove said in an interview Tuesday.

Other options include selling certain funds or eliminating fund classes, which would have the advantage of helping these outfits maintain above-average performance levels, Mr. Bove said.

Last week there was talk that Merrill was exploring a partial divestiture of Merrill Lynch Investment Managers to Legg Mason, even though the $513 billion-asset unit has thus far avoided the regulatory pressure other fund managers are feeling. Neither Merrill, of New York, nor Legg Mason, which is based in Baltimore, has commented on the speculation.

The rumor was preceded by Strong Financial Corp.'s May 26 announcement that it would sell $34 billion of assets to Wells Fargo & Co.; on May 20 the Menomonee Falls, Wis., company reached a settlement with state and federal regulators over its alleged involvement in the market-timing scandal being investigated by New York Attorney General Eliot Spitzer. Strong's settlement also led to the ouster of its chairman and founder, Richard S. Strong.

Mr. Spitzer's investigation of alleged trading abuses in the fund industry is just one issue facing mutual fund owners. …

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