Bank of America Is Missing Out on Wall Street's Boom

Bank of America Is Missing Out on Wall Street's Boom

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BAC 0.35%

Financial institution of America
Corp.’s


BAC 0.35%

buy of Merrill Lynch & Co., struck on the panic-filled 2008 weekend that Lehman Brothers failed, was purported to make the lender a top-flight international funding financial institution.

A decade later, the financial institution is struggling to make good on that promise. Financial institution of America has did not seize the advantages of a deal-making increase that has lifted its Wall Avenue rivals. Its general funding banking income within the first 9 months of the yr is roughly flat in contrast with the identical interval in 2010, in contrast with a mean enhance of greater than 50% at U.S. friends together with

Goldman Sachs Group
Inc.


GS 0.42%

and

JPMorgan Chase


JPM -1.09%

& Co.

Financial institution of America makes much more on service costs like overdraft charges than from merger and underwriting work, and the funding financial institution has by no means contributed greater than 7% of the corporate’s general income.

Chief Government Brian Moynihan has as an alternative discovered success with the Major Avenue companies of retail deposits and enterprise loans, pursuing a method of “accountable development” with “no excuses” that values stability over swagger. That playbook has gained over traders together with Warren Buffett, the financial institution’s greatest shareholder and a vocal cheerleader of Mr. Moynihan’s.

Financial institution executives say they wish to enhance in funding banking. “We wish to be within the prime three, and primarily based on and platform there’s no motive we shouldn’t be,” Chief Working Officer Tom Montag stated in an announcement. “It’s about maintaining our eye on the ball.”

Funding-banking income, first 9 months of every yr

Funding-banking income, first 9 months of every yr

Funding-banking income, first 9 months of every yr

Funding-banking income, first 9 months of every yr

The financial institution has traditionally relied on the facility of its nationwide model and deep lending relationships to drum up enterprise, somewhat than cultivating a tradition of famous person rainmakers. Many present and former executives say the financial institution hasn’t crammed necessary roles with bankers who’ve prime relationships and go to shoppers with the depth wanted to beat formidable rivals.

A few of these executives additionally say the financial institution’s conservative method has handcuffed the agency’s funding bankers, extremely paid professionals who pitch massive firms and governments on mergers and securities choices. Financial institution of America has, for example, shied away from shoppers deemed to hold reputational dangers that different banks are keen to tackle.

The agency has grown extra gun-shy after disclosing a $292 million loss earlier this yr on a mortgage to the then-chairman of troubled South African agency Steinhoff Worldwide Holdings NV. Lead unbiased director Jack Bovender instructed a commerce publication that executives answerable for the deal had been “taken to the woodshed.”

In July, after the financial institution reported decrease investment-banking income, Mr. Moynihan stated on a name with analysts that the M&A workforce “is aware of they will do a greater job and are after it.” He blamed dangerous luck, too. The financial institution has labored on some massive offers that fell aside like Comcast Corp.’s bid for 21st Century Fox belongings.

It was Mr. Moynihan’s predecessor, Kenneth Lewis, who inked the deal to purchase Merrill when it was flailing. The union, executives stated, would create a balanced behemoth, marrying Financial institution of America’s prepared provide of capital with the offers that Merrill’s white-shoe bankers would gin up. Financial institution of America would additionally acquire a “thundering herd” of economic advisers and its gross sales and buying and selling desks.

The settlement made Financial institution of America a hero as different monetary companies collapsed. However Merrill’s eat-what-you-kill energy brokers chafed on the merger with the Southern shopper financial institution. Senior bankers, used to freewheeling autonomy, had been requested in ensuing years to fastidiously observe their conferences. Executives had been instructed to learn staff’ emails to verify for compliance violations, individuals accustomed to the matter stated.

Mr. Moynihan, a low-key lawyer by commerce recognized for being a workhorse, grew to become CEO in 2010. The enterprise was a brilliant spot early in his tenure, when the financial institution was coping with massive shopper mortgage losses. From 2010 to 2013, the agency’s investment-banking income rose 13%.

Now, nonetheless, in a sector stuffed with competition-obsessed masters of the universe, Financial institution of America’s rankings are slipping. It’s eighth in U.S. merger income this yr, behind Jefferies Group LLC and

Barclays


BCS -0.57%

PLC, based on Dealogic. It has additionally slipped in debt companies it has dominated for years.

Twenty-eight managing administrators have left the funding financial institution for rivals because the starting of 2017, based on a report by recruiting agency Sheffield Haworth. Solely

Deutsche Financial institution
AG


DB 0.09%

has seen extra departures at that stage. A Financial institution of America spokeswoman stated the financial institution has made 49 managing director hires over that interval.

Christian Meissner, who oversees funding banking in addition to company banking, will go away on the finish of this yr, the financial institution introduced in September. He will probably be succeeded by Matthew Koder, the financial institution’s Asia-Pacific president. Mr. Koder has instructed colleagues he’s drawing up a plan to enhance the unit’s efficiency.

The agency’s conservative method has meant tighter constraints for the funding bankers. They had been barred from enterprise with subprime lenders, even for assignments that wouldn’t give Financial institution of America a lot publicity to the underlying loans, based on individuals accustomed to the matter. Bankers grumbled that Mr. Moynihan, who lives outdoors Boston, appeared much less keen on getting personally concerned in offers than his counterparts at JPMorgan or Goldman Sachs.

In late 2012, for example, Financial institution of America was vying for a job on Dell Inc.’s $24 billion buyout. JPMorgan CEO James Dimon was personally concerned in lobbying for the enterprise. Senior bankers requested Mr. Moynihan to do the identical however at a key level he didn’t, based on individuals accustomed to the matter. JPMorgan bought a marquee task advising Dell’s administrators. Financial institution of America gained part of the financing, which it cut up with three different companies.

“Brian engages with a whole lot of shoppers all year long,” a financial institution spokeswoman stated.

Tensions flared in late 2015 when Mr. Meissner proposed coleading a €20 billion mortgage to

Volkswagen
AG

, which wanted money to assist climate its emissions-testing scandal. Mr. Moynihan pushed again, arguing that backing the automobile maker would injury Financial institution of America’s status, based on individuals accustomed to the matter. The agency as an alternative took a second-tier function within the deal, which was led by

Citigroup
Inc.


C 2.14%

and different international banks.

Not like different prime executives, together with Financial institution of America’s head of human sources, Mr. Meissner didn’t have prepared entry to the agency’s non-public planes. That was as a result of he didn’t report on to Mr. Moynihan, however to Mr. Montag.

In 2016, considered one of Mr. Meissner’s prime deputies, Diego De Giorgi, took the rostrum at an annual New York assembly and urged bankers to be “sharks” in pursuit of enterprise. On the time, the financial institution had slipped from second to 3rd in funding banking income.

This yr, it’s No. four.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Liz Hoffman at liz.hoffman@wsj.com

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