National Financial stands to lose BofA's business

While pundits and industry insiders laud Bank of America Corp.'s acquisition of Merrill Lynch & Co. Inc., there might be a casualty few have considered. Much of Charlotte, N.C.-based BofA's $211 billion in client brokerage assets are in custody with National Financial Services LLC of Boston. However, as part of its purchase of Merrill Lynch of New York, the bank is acquiring a clearing company to which it can move its assets and reduce its costs. "Bank of America has said they want to cut $7 billion in expenses over the next five years, and moving those assets to Merrill is one way to do it," said Sean Cunniff, research director for brokerage and wealth management at The Tower Group Inc. in Needham, Mass. BofA has a contract with National Financial, so that will dictate how soon the move could occur. "It's one aspect of a much larger relationship, though," Mr. Cunniff said. For instance, Bank of America maintains agreements with Fidelity Investments, National Financial's parent company, for outsourcing some human resources functions and employee 401(k) programs. National Financial has more than $689 billion under administration. Larry Tabb, founder of The Tabb Group LLC in Westborough, Mass., said that the move would be far from instantaneous, comparing it to the 1998 formation of Citigroup Inc. of New York from Citicorp Inc. and Travelers Group Inc. (which included Salomon Smith Barney Holdings Inc.). "It will take time; it's not going to happen tomorrow. But it is something for them [National Financial] to worry about." "It's a fairly safe assumption" that the assets will move to Merrill, though it is too early in the process to be sure of anything, according to Anthony Polini, a banking analyst with Raymond James & Associates Inc. of St. Petersburg, Fla. Todd Hagerman, a New York-based analyst with Credit Suisse Group of Zurich, Switzerland, declined to comment. While National Financial stands to lose assets, its sister unit, Fidelity Institutional Wealth Services, which serves registered investment advisers, could help replace the assets. It will attempt to snag Merrill brokers who decide to become independent advisers, Mr. Cuniff said. The firm attracted 55 breakaway brokers, bringing more than $7 billion in assets during the first half of 2008. Representatives of BofA, National Financial and Pershing LLC of Jersey City, N.J., declined to comment. E-mail Davis D. Janowski at djanowski@investmentnews.com.