Wednesday ended a tumultuous year for the financial sector and a trio of companies forced to sell themselves because of the credit crisis.
And the new year will pose challenges for those companies' buyers: Wells Fargo & Co., PNC Financial Services Group Inc., and Bank of America Corp. Wells' deal for Wachovia Corp. closed Wednesday, as did PNC's deal for National City Corp., and B of A's deal for Merrill Lynch & Co. Inc. was set to close Thursday. Analysts say that all three buyers will be tested right away as they seek to contain damage from risky mortgage bets and retain clients and that they expect at least one key executive from each of the acquired institutions to be on hand to ensure continuity through the integration process.
At Bank of America all eyes will be on Merrill Chairman and Chief Executive John Thain, who agreed to stay on and run the $1.83 trillion-asset Charlotte company's investment banking operations. Though B of A plans to slash more than 30,000 jobs over the next three years, Mr. Thain is one of several Merrill executives who will remain in roles that outsiders believe critical to keeping clients who are used to high-touch service. B of A must also continue Merrill's effort to reduce exposure to structured products such as collateralized debt obligations.
"B of A's modus operandi is to cut out a lot of costs … which will create a different organization at Merrill," Gary Townsend, the CEO of Hill-Townsend Capital LLC, said in an interview Wednesday. B of A will also want to move more Merrill customers to its own high-net-worth platform, where Mr. Thain's leadership will be vital, Mr. Townsend said.
Though some observers have said that Mr. Thain might ultimately succeed Kenneth D. Lewis as chief executive, Nancy Bush of NAB Research LLC said the former Merrill CEO's long-term status at the company is unclear. "But I think there's an admission of realism that B of A wants to preserve a lot of the Merrill platform and they need him to do it." In October, Mr. Lewis told American Banker, "I can't say enough good things about" Mr. Thain.
Wells Fargo will have its hands full minimizing losses from Wachovia's $119 billion option adjustable-rate mortgage portfolio. Another challenge for the $622 billion-asset San Francisco company will be integrating Wachovia's brokerage operation, a business largely foreign to Wells, which is already in the middle of a sizable integration with A.G. Edwards.
David Carroll, who ran Wachovia's capital management business, could play an important role on both fronts. Mr. Carroll is overseeing wealth management and brokerage at Wells and is the only Wachovia executive selected to join Wells' 12-member management team. He was also in charge of tackling Wachovia's mortgage issues before the company agreed to sell itself to Wells. Mr. Townsend said Mr. Carroll is likely to "stick with the company and be a survivor" at least in the short term. But, he said, "I don't see him as one who is likely to rise within the structure of Wells." (Wachovia said Mr. Carroll was not available to comment.)
Managing residual mortgage exposure and retaining retail banking clients will also likely be the biggest challenges for PNC as the $128 billion-asset Pittsburgh company integrates National City. Analysts say Thomas Richlovsky, Nat City's former chief financial officer, should emerge as an integral resource for James Rohr, PNC's chairman and CEO. Mr. Richlovsky "will be extremely important to the integration" given his knowledge of the Cleveland company's operations, Ms. Bush said. A Wells spokeswoman said she would not comment, and calls to the other companies were not immediately returned.