BofA Hires Staff, Leans on Merrill to Expand Overseas

By David Mildenberg

March 31 (Bloomberg) -- Bank of America Corp., the lender that bought stakes in foreign firms to expand overseas, will grow on its own by adding staff and offering services through Merrill Lynch, according to the company’s head of global corporate banking.

“Merrill Lynch had three times as many relationships as we had at Bank of America” in Europe, the Middle East, Africa and Asia, Paul Donofrio said in a March 29 interview. Emerging markets are “where we will find the most immediate opportunities,” he said.

The addition of Merrill Lynch in January 2009 gives Chief Executive Officer Brian Moynihan more resources to draw upon outside the U.S. as he maps a bigger international role for Bank of America. His firm is the largest U.S. lender by assets, with only 17 percent tied to foreign nations. Former CEO Kenneth D. Lewis invested in international banks in Argentina, China and Mexico rather than building internal operations.

Moynihan, 50, who made his first trip to China last week as CEO, has said he wants the Charlotte, North Carolina-based bank to concentrate on internal growth rather than acquisitions.

“For Bank of America Merrill Lynch to reach its full potential, we have to be great outside the U.S.,” said Donofrio, 50, a London-based executive who reports to Tom Montag, president of global banking and markets. Success is most likely to happen in emerging markets, where relationships are less entrenched than in Europe and other more mature markets, according to Donofrio, who has worked at the company’s investment bank since 1999.

Hiring Plans

Montag told colleagues at a March conference in London that most global banking hires this year will be outside the U.S., according to two people with direct knowledge of his remarks. Emerging market nations typically refer to Brazil, Russia, India and China, though Donofrio declined to discuss specific geographic targets.

Bank of America added more than a dozen corporate banking executives in Hong Kong, Singapore, London and New York this year to boost its global expertise, including four managers starting in May, according to a March 29 statement. The lender plans selective hiring rather than adding dozens of new corporate bankers, Donofrio said.

One of the fields he’s targeting is treasury services, used by companies to manage payments to suppliers and vendors, collect receivables and to predict cash positions and then invest and borrow accordingly. Bank of America led in 2009 with a 20 percent market share in the U.S., according to an Ernst & Young survey.

“The treasury management fee pool is many times larger than global investment banking,” Donofrio said.

Foreign Affairs

Bank of America’s foreign units, which exclude Canada, reported a $7.3 billion profit in 2009, including a $4.7 billion gain from the sale of shares in China Construction Bank. In 2008 and 2009, Bank of America reported $10.6 billion in losses in its U.S.-dominated credit-card and home-lending units as the domestic economy suffered its sharpest decline since the 1930s. Counting costs of repaying bailout funds, the company posted a $2.2 billion loss for 2009.

The overseas thrust comes as U.S. banks face a regulatory overhaul proposed by Senate Banking Committee Chairman Christopher Dodd, the Connecticut Democrat, and expected revenue losses tied to new regulations on consumer-banking products including home loans, credit cards and debit cards. Bank of America may lose $3.3 billion in net revenue annually as it halts overdraft fees on debit cards, in addition to the lender’s previous acknowledgement of an $800 million after-tax cost due to new federal restrictions on credit card fees, Sanford C. Bernstein analyst John McDonald said in a March 29 report.

Limits at Home

“Tighter regulation on consumer banking in the U.S. is making it more advantageous to invest overseas,” said Gary Townsend, president of Hill-Townsend Capital LLC, a Chevy Chase, Maryland-based investment firm that owns Bank of America warrants. “Bank of America is less likely to invest and hire in the U.S. given our government’s current policies.”

Concentrating on international growth could cause Bank of America to lose its focus on improving unprofitable U.S. operations, said Greg Donaldson, chairman of Donaldson Capital Management, an Evansville, Indiana-based investment firm that manages more than $300 million. Moynihan “is trying to do a lot of things in a hurry, which often proves to be a mistake,” he said. “I’d rather they fix their problems first.”

About 18 percent of Bank of America’s revenue came from overseas last year compared with 25 percent at JPMorgan Chase & Co., the second largest U.S. bank, and more than 40 percent at Goldman Sachs Group Inc., the New York-based investment bank.

Asian Plans

“Our goal is to create one of the world’s largest universal banks in Asia,” Bank of America’s Asia-Pacific President Brian Brille said at a March 24 press event.

Moynihan hasn’t given a timetable on the bank’s plan to incorporate a Bank of America business within China, the world’s most populous nation. The lender is the second-largest shareholder of China Construction Bank.

“We do better when we play to our strengths, and our strengths are in the U.S.,” Lewis said in a June 2007 interview. He cited research by the bank and McKinsey & Co. that showed the U.S. offers the greatest potential for new fees over the next decade.

Fifteen months later, in September 2008, Lewis cited Merrill Lynch’s international scope as a key benefit when announcing the bank’s acquisition of the world’s largest securities brokerage. About a third of New York-based Merrill Lynch revenue typically came from overseas.