The high-net-worth card industry may face a tough year ahead as many people's investments shrivel and they drop from the ranks of the high-net-worth; still, Bank of America's acquisition of top-tier brokerage Merrill Lynch gives the Charlotte NC-based behemoth "a special edge" in this segment where it once lagged, says Brian Riley, a research director with Needham, MA-based TowerGroup.
The top-tier global private banking groups at JPMorgan Chase, Citigroup and Wells Fargo will all have to take notice, Riley says, because BofA's acquisition provides it a distinct advantage in the realm of innovation. "[BofA] was not a leading player," he says. "They certainly have a good-sized private bank, but did not dominate the industry. This puts them in a very strong position at the top end. [Merrill has] the most aggressive product toward that market on the card side, so the offering is terrific and the spend on it substantial." BofA declined to speak about the Merrill Lynch acquisition.
Of note is Merrill's ability to offer deferred debit cards, Riley says. While rare in the United States, deferred debit has been very successful in Europe; these are short-term credit accounts that sweep against asset and brokerage accounts and provide no-interest or low-interest loans for a short period until settlement. "That will be a unique offering for [BofA], which certainly can extend itself to the private bank depending on how they design it."
The Merrill program will be in addition to BofA's Accolades American Express Card, which it released in June of 2007 and was the $1.3 trillion institution's first premium card offering. One big question posed by the acquisition of Merrill is the future of that card. For its part, BofA says that it has been "very pleased" with the Accolades Card and that it remains "committed to delivering premium card services" through its Accolades offering.
AmEx spokesperson Desiree Fish acknowledged that the company expects to see increased competition due to market consolidation. "There is always going to be competition-we were the first but we're not the only," she says. "We're a leader but we have to continue to evolve and make our products better so that we can continue to keep that competitive advantage. With consolidation and new products in the marketplace, you compete by continuing to make sure that you are giving the customers what they want and meeting their needs and evolving. You can't stand still in the premium market."
JPMorgan Chase (which acquired the assets of Washington Mutual and earlier bought Bear Stearns), Wells (which nabbed Wachovia) and Citi (which lost its bid for Wachovia) all declined to comment for this story. When it comes to the high-net-worth card market, everyone is looking to play it close to the vest, says Red Gillen, a senior analyst with Boston-based consultant Celent. He doesn't see any one bank gaining an advantage in the card market from a particular acquisition. Rather, he believes the bank gains by having a new clientele-base for cross-selling purposes.
"All the players who have done the acquiring already have premium cards...and their functionalities are quite the same across the board, so there is very little distinction," Gillen says. "Where I see the difference is more outside the card realm where the bank is able to cross-sell retail banking products to this new cardholder base."
Thad Peterson, a division vp at Fenton, MO-based consultant Maritz, agrees that adding such a prestigious brokerage could have a big cross-sell impact for BofA. But he also notes that BofA should keep the two card offerings separate, rather than branding the two together.
"If you can get to the same stuff in Bank of America through either channel - so you can do brokerage through BofA branches, it still goes through Merrill but it's not a Merrill branded product, and you can get banking products through Merrill - then you capture two entirely discreet distribution channels and a whole bunch of discreet customers that would've never done business with you."