Bank of America Corp.'s pending acquisition of Merrill Lynch & Co. Inc. would add a small but significant cards business with a valuable, high-end customer base.
Observers said the brokerage company's card products have some unusual features, notably a well-developed rewards program and a "deferred debit" product that the Charlotte banking company could adapt for its existing cards portfolio. This could chip away at a traditional stronghold of American Express Co. And though Merrill's portfolio is insignificant when compared to Bank of America's massive cards operation, its cardholders will probably generate disproportionate revenue.
Brian Riley, a research director in the bank cards practice at TowerGroup, the independent research firm owned by MasterCard Inc., said the $50 billion deal would give Bank of America "a real tie-in to that high-end-net-worth market." Merrill's "very attractive portfolio" is "not big, but it transacts a lot."
B of A offers a luxury product for its own high-net-worth clients: Its Accolades card, introduced in June 2007, runs on the Amex network and is available to customers who have at least $100,000 in investment or deposit accounts with the company.
In a report issued Wednesday, Mr. Riley predicted that B of A would consider adapting some of Merrill's unusual product features "to create a dominant card product for the high-end market." Merrill brings "B of A a high-net-worth, network-branded card product that can directly compete with the co-issued Bank of America/American Express Accolades card."
The Merrill cards, which run on Visa Inc.'s network, may be attractive to B of A's Accolades customers because of their greater acceptance internationally, Mr. Riley said in an interview. Merrill also has a "terrific rewards program," he said, which is traditionally Amex's strength. Features like the deferred debit capability let Merrill's debit cards essentially function as charge cards, he said, with all the payments settled at the end of the month from the cardholder's account.
"As an issuer, this is not something you'd want to do in the mainstream in the United States because you're taking a credit risk on every customer," Mr. Riley said. Still, B of A will now have access to a fully implemented — and unusual — feature that it could repackage for a different audience. "Without doing a lot of infrastructure change, you might be able to test that today" for a more mass-affluent customer, he said.
The banking company already issues Merrill's credit cards, a relationship that came with its 2006 purchase of MBNA Corp. The Nilson Report ranked Merrill Lynch 26th among U.S. payment card issuers in 2007, with $10.44 billion of purchase volume at merchants on its debit cards. B of A was ranked No. 1, with $451.76 billion on its credit and debit cards. The company would not discuss its plans for Merrill's card operations.
Merrill spokeswoman Selena Morris said anyone can apply for its credit cards and that its debit cards are available to its brokerage customers.
Joanna Lambert, a spokeswoman for Amex, said it is "confident in both our partnership with B of A and the value propositions of the premium products we offer to B of A's customers."
Ken Lewis, Bank of America's chief executive, said in a Monday press conference that he planned to maintain Merrill's separate identity and "keep the name and keep the organization intact."
Some analysts were skeptical that B of A would move away from its Accolades product — or that customers would be interested in its doing so. Ken Paterson at Mercator Advisory Group said he would be surprised if Bank of America muddled its card products after committing itself to maintaining the separate wealth management divisions. "Making any broad moves to consolidate those programs would be fairly difficult without consolidating the broader wealth management programs," he said. "I certainly wouldn't see any short-term moves to combine those programs."
Rus Prince, a high-net-worth analyst at Prince & Associates, said, "The wealthy are more interested in the card itself than they are in the issuer" or the network brand. Rewards and customer service are paramount: "If you switch me over, I don't care as long as it doesn't change what I've got," he said. Having a certain card type "is not the prestige element that it was years ago."
