More Banks Get into the Brokerage Business


Banks are spinning their tires furiously to make back those revenues blocked by new regulations from Uncle Sam. But one area where they could make traction is in brokerage services – and more and more big banks are getting in on the action.

From the banking industry’s point of view, they have no choice. While the Federal Deposit insurance Corp. points out that U.S. banks did earn $18 billion in the first quarter of 2010 – that’s the highest amount since the first quarter of 2010. (Bank industry officials say that new financial reforms could cost them billions.) In addition, Business Week estimates that bank assets have declined by a “record 5.3%” in 2009, while consumer credit fell by 6.6% - the most since World War II.

To fight back banks are looking to turn their banking customers into brokerage customers.

Bank of America (Stock Quote: BAC) is the latest bank entrant pushing harder into the asset management business. Bank of America Merrill Lynch (the bank purchased Merrill Lynch in July, 2009) announced on June 17 that it would create a new online brokerage service that would compete with firms like Charles Schwab (Stock Quote: SCHW) for the less-affluent investor consumer marketplace.

The new brokerage service is called Merrill Edge, and it’s aimed squarely at investors – mostly younger ones – who have less than $250,000 in investable assets. Bank of America is so serious about Merrill Edge that it is transferring 500,000 existing online brokerage clients to the new service this summer.

How much money does bank of America expect to net via Merrill Edge?

The bank will charge $8.95 per trade but will offer customers with more than $25,000 in a Bank of America account 30 free online equity trades per-month. The emphasis is completely on cross-selling. Merrill Edge customers will be able to link their accounts to Bank of America’s full menu of services, including banking, credit, retirement and investments. That should trigger more bank fees as Merrill Edge customers move from platform to platform as they use more bank services.

Wells Fargo (Stock Quote: WFC) has gotten into the act, as well. The company has added 20% additional staff to its Wachovia bank outlets as part of an effort called “Eight is Great” to increase the amount of products it sells to bank customers. The bank wants to hike its per-customer product rate from 6.47 to 8.00.

In an interview with Business Week, Wells Fargo Senior Executive Vice President David Carroll said that the bank wants to double its share of net income to 20% via the cross-selling strategy. If that had happened in 2009, he said, Wells Fargo could have earned “at least” $1 billion more in revenues.

With banks claiming an uphill fight due to financial reform, look for more of them to engage in more aggressive cross-selling programs.

It’s all about the age-old maxim in business: “make money the old-fashioned way – get your customer to earn it.”

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