BofA’s wealth business wilts but Thiel retains support

By Elizabeth Dilts and Jed Horowitz

NEW YORK (Reuters) – Bank of America said on Wednesday that first-quarter profit and revenue fell in its Global Wealth and Investment Management division from a year earlier on lower commission income and higher expenses.

The unit, which includes the Merrill Lynch brokerage and U.S. Trust private banking business, was also hurt by falling interest rates, the company said.

In a conference call with investors, Bank of America Chief Executive Brian Moynihan defended the performance of Merrill Lynch Wealth Management head John Thiel. According to some published reports, Thiel has lost the confidence of some veteran Merrill brokers.

“John Thiel does a great job for us,” Moynihan said.

Wealth management remains the smallest of Bank of America’s four businesses but is highly prized because of its low demands on capital and its usually stable revenue production that offsets volatile trading activities at the bank.

Last quarter, however, net income in the wealth businesses fell 11 percent from a year earlier to $651 million. Revenue was off 1 percent to $4.5 billion. That resulted in a drop in profit margin to 23 percent from 26 percent one year earlier and 25 percent in the last quarter of 2014.

Bank of America as a whole returned to profitability in the second quarter, booking $2.98 billion of net income and beating analysts’ expectations.

The bank has been encouraging Merrill’s more than 14,000 brokers to sell mortgages and other loans to their investment clients. Despite initial resistance, loan balances at Merrill rose 9 percent from a year ago to an average of $126 billion.

Despite the lending spurt, net interest income in the wealth division fell by $134 million from a year ago to $1.4 billion during the quarter.

Executives attributed about half of the net interest decline to a new accounting rule that affected wealth management particularly hard.

In addition, expenses rose 3 percent from a year earlier to $3.5 billion, which Moynihan, on the investor call, attributed to hiring at Merrill and U.S. Trust. Merrill ended the quarter with 14,183 brokers, a net increase of 98 brokers over the past three months.

Moynihan said revenue weakness last quarter reflected lower commissions as Merrill converts brokerage clients from commission-based trading to fee-based advisory accounts.

Offsetting some of the commission loss was an 11 percent rise in asset management fees at Merrill to $1.65 billion.

(Reporting By Elizabeth Dilts; editing by Andrew Hay)