Monday, September 27, 2010

Merrill Lynch to Expand in South Africa

Competition from foreign banks in SA is hotting up. Merrill Lynch, which was acquired by Bank of America (BofA) in 2008 during the financial crisis, will make big announcements next month on its expansion and investments in SA.

This will include upgrading its local operations to extend to commercial banking activities. In SA, Merrill Lynch, as a BofA subsidiary, has a securities licence and is a brokerage firm.

But registrar of banks Errol Kruger confirmed this week he has received an application from BofA for a banking licence for a representative office. This means it will be able to lend in SA, but not take deposits.

Merrill Lynch has more than doubled its commitment in SA in terms of credit exposure to US$1,3bn in the past year. It is also spending millions of dollars to beef up its research team and other units it wants to set up. It has already hired 15 people this year to support its expansion and the target is to increase the head count to more than 100.

The expansion is being led by Marcus Heilner, Merrill’s head of global corporate & investment banking for Africa. He sees SA as a launch pad into the rest of Africa and wants BofA Merrill Lynch to be number one among the global banks in SA in terms of investment exposure.

It wants to replicate the Citibank model, which is heavier compared with global giants JP Morgan and Deutsche, which do not do cash management. BofA Merrill Lynch also intends competing with the Big Four, Standard, Absa, FirstRand and Nedbank, in the corporate banking space.

“There is significant opportunity in corporate banking. Corporate banking revenues, for example, were up 100% for the first four months of the year,” Heilner told the FM in June. “We’ve discovered that SA corporates are concerned about concentration of risk with the Big Four SA banks.”

While there are big plans for SA and the rest of Africa, which include expanding product and origination capabilities, the bank’s more immediate target is to have the number one research team in the country. It was the top research house in SA not that long ago, b ut the franchise and research business has suffered. “We haven’t been innovative and provocative enough. We need to get the basics right,” says Heilner. “It’s a no brainer to bring global research and deliver it in a way that is relevant to the thinking in SA.”

From the Financial Mail