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Bank of America this month agreed to buy Merrill Lynch for $4 billion. Now all BofA has to do is integrate its massive operations with those of the giant investment firm. However, the banks past systems mergers haven't always gone smoothly. Here's a look a BofA's past integration efforts and the task it now faces with Merrill.
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By Mel Duvall
The economic forces that forever changed the face of Wall Street this month have left behind a trail of casualties, and a handful of bigger, more powerful victors.
But none are likely to emerge from this mess bigger and more powerful than Bank of America. With its $4 billion bailout of Countrywide Financial in January and this month's rescue of Merrill Lynch for $50 billion, Bank of America became a financial services juggernaut.
Once the Merrill Lynch takeover is complete, it will rank as the largest retail bank in the country, the largest mortgage provider, the largest retail brokerage, and the No. 1 credit card issuer. The bank already had about 59 million consumer and small-business accounts, more than 6,100 branches, and about 40 million active credit card accounts.
Now it gains an investment business with some 16,000 experienced brokers, managing $1.6 trillion for customers.
Bank of America chief executive Ken Lewis called the Merrill Lynch acquisition "the strategic deal of a lifetime" and speculated that it may be the last mega-purchase of his career.
Now all Bank of America has to do is integrate its massive operations with those of the giant investment firm.
While BofA has had considerable experience in merging and integrating other companies, those integrations haven't always gone smoothly.
In a conference call following the announcement of the deal, Lewis seemed not too concerned about the massive integration challenge that lay ahead, saying it had become "a core competency" for the Charlotte, N.C.-headquartered company. (However, he did add work on the integration would not likely begin until 2010.)
There is some truth to the statement that integration is a core competency. Bank of America - and Lewis' career - has been built on a series of "once-in-a-lifetime" opportunities. Consider the last five years alone. In 2003, Bank of America consumed FleetBoston Financial for $48 billion. Two years later, in June of 2005, it struck a deal to purchase credit card giant MBNA for $35 billion in cash and stock. In November of 2006, it struck a deal to purchase U.S. Trust, the private banking unit of Charles Schwab, for $3.3 billion. Then, in April of 2007, it purchased Chicago-based LaSalle Bank for $21 billion.
But after purchasing Florida's Barnett Banks in 1997, it so badly bungled the conversion of Barnett's systems over to its own core banking platform that customers fled to competitors in frustration. By 2003, the bank's share of the Florida market had fallen to 20%, from the 29% share Barnett commanded in 1997.
It similarly took much longer than expected to integrate banking systems in California with the rest of the country following the 1998 merger between NationsBank and BankAmerica, which created today's Bank of America. To get around the difficulties of merging systems, the bank simply operated on two core banking platforms—one for California, and one for the rest of the country.
Now, Lewis has saddled his information technology team with perhaps its biggest integration project yet.
At the same time as it is completing the migration of systems at LaSalle and Countrywide, it must now begin preparations to integrate Merrill Lynch. And with each acquisition, the stakes and the risks associated with a botched changeover are that much greater.
"We know we have some hard work to do in this transition," Lewis said. "But, we're good at that. We intend to be very focused on making this the best transition ever done in the world to create the best financial services company in the world."
Bank of America spokesman Christopher Feeney said no formal decisions have yet been made on which systems will be integrated or continue to operate as standalone, or what the time frame for the integration will be. "We have a very deliberate transition process to decide such things," he said.
However, in the conference call announcing the deal, Lewis did provide some insights into the process. He said the bank just completed the transitioning of systems from U.S. Trust onto its own platforms, and that the transitioning team is on schedule to convert LaSalle Bank over by October of this year. Once that is completed, the team will begin work on Countrywide, which Lewis said the bank is looking to complete by the third quarter of 2009.
"We wouldn't even think about converting [Merrill Lynch] until 2010 when we have Countrywide behind us," Lewis said. "We'll be using the same people who will be going from one conversion to the next."
Next: The First Priority—Risk Assessment
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