Profits But No Joy for Merrill

Nelson D. Schwartz|The New York Times

It sounded like a crank call, the business equivalent of “Do you have Prince Albert in a can?”: Hello, Warren Buffett wants to talk to your boss.

Only this was no gag. The caller was telling a banker in Chicago that none other than Mr. Buffett wanted to reach the chief executive of Bank of America, ASAP.

The hurried deal that emerged from that early-morning call in late August underscored Bank of America’s predicament: It was the too-big-to-fail bank that, to some, also seemed too big to succeed.

Its C.E.O., Brian T. Moynihan, has been struggling to fix things for almost two years. After the financial markets turned on the company this summer, Mr. Buffett invested $5 billion, arresting a precipitous decline in Bank of America’s share price.

But not even the imprimatur of the Oracle of Omaha has been enough to dispel the clouds. Despite the billions from Mr. Buffett, and tens of billions in asset sales, Bank of America can’t seem to find its way.

The situation has set teeth on edge at its headquarters in Charlotte, N.C. But perhaps nowhere is the grumbling louder than in Midtown Manhattan, at One Bryant Park, now the base of the Wall Street bank formerly known as just Merrill Lynch.

When Merrill collapsed into the arms of Bank of America in late 2008, the deal remade the face of Wall Street. Merrill, with its “Thundering Herd” of rough-and-tumble stockbrokers, was now reporting to more formal Southern bankers in Charlotte. No sooner was the deal done than gaping losses at Merrill threatened to drag down Bank of America. Washington stepped in with the second of two federal bailouts.

Nearly three years later, taxpayers have been repaid, with interest, and what is now Bank of America Merrill Lynch is doing surprisingly well. But the company as a whole is groaning under the weight of many billions of dollars in bad home mortgages, most of them inherited from Countrywide Financial, which it acquired in 2008.

Bank of America’s stock , down 54 percent this year, is the biggest loser in the Dow Jones industrial average.

The irony is not lost on bankers, brokers and traders at One Bryant Park. The billions of dollars that Bank of America Merrill Lynch is earning from its businesses on Wall Street are being wiped out by the red ink flowing out of Countrywide. Bonuses are on the line. So are jobs.

“It’s debilitating and depressing,” says one Merrill veteran, who insisted on anonymity because he was not authorized to speak publicly. “People are very angry. How could we not be?”

Many Americans who don’t work in the financial industry — people who are struggling to make ends meet, or to find jobs, or to keep them — are more than angry. But this is Wall Street, where money is the measure and where, even in this post-bailout era, top producers expect to be paid, and paid well.

In hindsight, many agree that Mr. Moynihan’s predecessor, Kenneth D. Lewis, paid too much for Merrill Lynch: $50 billion in stock. The outcry over the deal and subsequent bailout led to investigations by state and federal regulators. A lawsuit brought by Bank of America shareholders contends that Bank of America tried to keep the losses at Merrill quiet, and seeks $50 billion in damages.

So it might come as a surprise that Bank of America Merrill Lynch is actually thriving. Measured by fees collected for Wall Street work, it is second only to JPMorgan Chase and well ahead of Goldman Sachs and Morgan Stanley .

The global banking and markets unit of Bank of America, which includes many of the operations it acquired in the Merrill merger, earned $3.7 billion in the first half of 2011. With help from the Thundering Herd, the bank’s assets under management have increased to $2.2 trillion from $2 trillion in the last year, despite the turbulence in the financial markets.

At One Bryant Park, all of this comes as cold comfort.

Many bankers and traders typically receive at least half of their pay in the form of restricted stock. In recent years, Bank of America has made such awards when its share price was trading upwards of $14. With the price now at $6.12, anyone who got shares has essentially suffered a big pay cut since they were handed out, mostly because of the problems associated with Countrywide, the subprime lender whose excesses came to symbolize the housing bubble.

Executives at Bank of America Merrill Lynch concede that they have a big mountain to climb.

Henry Mulholland, the head of equities for the Americas, says: “It’s been a major slog through the mud. The mortgages are overshadowing everything.” Mr. Mulholland says that inside the company, however, “there is a broad consensus that we will have our day — and the stock will be looked at very differently.”

Dan Cummings, head of equity capital markets, adds: “We don’t obsess about it, and we’re incredibly well-positioned for the future.”

As executives at Bank of America Merrill Lynch often point out, the share prices of other big banks are down, too. “We’re all in the same boat, and people understand the financial sector is under pressure,” says Purna R. Saggurti, chairman of global corporate and investment banking.

Still, Bank of America has been beaten up more than its rivals. The share price of Goldman Sachs has fallen 44 percent this year. JPMorgan Chase is off 29 percent.

And despite all the chin-up talk, veterans say the frustration is building.

“Unlike last year, when there were expectations of a rebound, the general thinking is we’re likely to be under pressure for a while,” one longtime banker at Bank of America Merrill Lynch says. Speaking of the mortgage woes, he observes, “It’s come home to people just how big and unrelenting this is.”

If this weren’t enough, the Thundering Herd was shook up in September when Sallie Krawcheck, one of the best-known executive women on Wall Street and the head of the company’s successful wealth management unit, was forced out in an internal organization. Mr. Moynihan and Ms. Krawcheck were never close — she was hired by Mr. Lewis — and Mr. Moynihan was frustrated by the pace of integrating the broker force into Bank of America.

Meanwhile, the man who ran most of Bank of America Merrill Lynch, Thomas K. Montag, was promoted to co-chief operating officer for the entire company, a new position that will raise his profile at the headquarters in Charlotte, as well as at One Bryant Park.

The rise of Mr. Montag underscores how important what was once Merrill Lynch has become to Bank of America. He joined Merrill shortly before the acquisition, and he is a frequent and popular presence on the trading floors. His boss, Mr. Moynihan, is a less visible figure at One Bryant Park, although he has staunch defenders among the ranks, especially when outsiders complain that he lacks the charisma of, say, Jamie Dimon, the chairman and C.E.O. of JPMorgan Chase.

“I listen to people who criticize him for being unglamorous, and I say, ‘Who cares?’,” Mr. Mulholland says. “He’s got a difficult job that involves a lot of heavy lifting. He’s willing to make difficult decisions.”

FOR one banking executive, it all had a familiar ring: The sleepless night, the meeting in the conference room, the news that you’re out.

In his case last month, this senior banker at Bank of America Merrill Lynch was delivering the news, but he’d been on the receiving end in the past.

“It’s never fun to sit in a room and tell people they don’t have a job,” he says. “For the younger generation, it kind of stinks. But for the older generation, no one is surprised. Sometimes you survive, sometimes you don’t.”

It’s a frequent refrain at One Bryant Park these days, where pink slips are being handed out, just as they are at other Wall Street firms caught in the undertow of a moribund economy and an unruly trading environment. Just last week, Goldman Sachs was preparing to cut more jobs than the 1,000 it had previously announced; Credit Suisse recently laid off administrative assistants at its investment banking unit as part of a larger reduction of 2,000 employees.

But, in sheer number, the cutbacks expected at Bank of America are almost without rival in American banking. The bank, which has a total of 288,000 employees, will eliminate 3,500 jobs in the second half of 2011, and an additional 30,000 or so over the next few years. For Bank of America Merrill Lynch, that has meant hundreds of cuts in the last few weeks, including a number of highly paid investment bankers.

Wall Street is often a hire ’em, fire ’em kind of place, but the latest round of layoffs went deeper than the usual cull of underperformers. Even Bank of America Merrill Lynch’s outspokenly bullish equity strategist, David Bianco, found himself out of a job in September.

And more cuts are on the way. An internal initiative called Project New BAC, after Bank of America’s ticker symbol, starts in October. Senior executives want to reduce layers of bureaucracy and eliminate the red tape that many managers say is one of the less appealing results of Bank of America’s merger spree.

The executives who led the project have already combed through Bank of America’s consumer banking operations and other units to come up with the 30,000 jobs to cut over the next three years. While huge layoffs aren’t envisioned for Bank of America Merrill Lynch — it employs about 19,000, versus nearly 100,000 for the consumer banking operations — some jobs are expected to disappear.

Despite the pain, some senior bankers are saying privately that they’re hoping the division can become a bit nimbler as a result of Project New BAC.

“There is just a feeling that you can’t make a move on things that make a great deal of sense,” one executive says. “There’s just this enormous black hole.”

Sometimes, he says, the bureaucracy is suffocating. “I like being out on the road with clients,” this executive adds. “It’s only when I’m sitting in this office am I reminded of what a big, burdensome place this can be.”

Mr. Montag isn’t one for moaning and groaning. “At many firms, not just here, there’s a woe-is-us attitude,” he says. “The market is after us, the economy is after us. You name something and people will say it’s after us.”

He says morale is much better than it was two years ago. His advice for the complainers? “Show no fear. People respond to that.”

With that attitude, he says, “people will walk through the fire with you.”