Bank of America Still Causing Problems for Merrill Brokers

Bank of America has always been a disaster in the brokerage business, with a long history of mistreatment of its brokers. That outrage became well known when it took over the failing Merrill Lynch in 2008. Bank of America forced brokers out of the firm, by reducing payouts, refusing to pay for business which had already been booked, and for generally not having a clue how to run a brokerage firm. Merrill Lynch was not much better, given the fact that it was virtually bankrupt by the fourth quarter of 2008.

The complete mismanagement of the firm, first by Merrill, compounded by Bank of America, forced brokers to leave the firm, and doing so at their own financial peril, leaving behind significant deferred compensation and outstanding promissory notes. Apparently, staying was even worse.

That trend continues, three years later. On Wall Street is reporting that UBS is hiring teams of Merrill Lynch brokers. In an article "UBS Hires Raft of Veteran Merrill Brokers" Ashley Lau reports that UBS had placed a premium on brokers from Merrill, Bank of America's brokerage unit, by increasing up-front bonuses offered to those who signed before the end of 2011. That move came at the same time that Merrill brokers were about to receive the last of two big payouts on previous incentive plans.

The article continues to say that industry analysts said in early January that they expect to see more defections from Merrill's "Thundering Herd" of brokers, many already frustrated with changes since Bank of America purchased the firm three years ago, after the award payments are made in late January and early February.

We have been representing brokers in transition, contract and promissory note matters for over two decades, and are presently representing former Bank of America and Merrill Lynch brokers with their transition and promissory note issues. We have set up a dedicated email address for inquires from brokers who need assistance with their employment issues with Merrill Lynch, or any other wirehouse - brokers@seclaw.com


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FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees

FINRA has fined Merrill Lynch, Pierce, Fenner & Smith $1 million for failing to arbitrate disputes with employees relating to retention bonuses. Registered representatives who participated in the bonus program had to sign a promissory note that prevented them from arbitrating disagreements relating to the note, forcing the registered representatives to resolve disputes in New York state courts.

After merging with Bank of America in January 2009, Merrill Lynch implemented a bonus program to retain certain high-producing registered representatives and purposely structured it to circumvent the requirement to institute arbitration proceedings with employees when it sought to collect unpaid amounts from any of the registered representatives who later left the firm. FINRA rules require that disputes between firms and associated persons be arbitrated if they arise out of the business activities of the firm or associated person.

In January 2009, Merrill Lynch paid $2.8 billion in retention bonuses structured as loans to over 5,000 registered representatives. Merrill Lynch structured the program to make it appear that the funds for the program came from MLIFI, a non-registered affiliate, rather than from the firm itself, allowing it to pursue recovery of amounts due in the name of MLIFI in expedited hearings in New York state courts to circumvent Merrill Lynch's requirement to arbitrate disputes with its associated persons. Later that year, after a number of registered representatives left the firm without repaying the amounts due under the loan, Merrill Lynch filed over 90 actions in New York state court to collect amounts due under the promissory notes, thus violating a FINRA rule that requires firms to arbitrate disputes with employees.

FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees

Moody Lowers Bank of America's Debt Rating

Not much of a surprise here - Moody's Investors Service has lowered Bank of America Corp.'s debt ratings, saying it is now less likely that the U.S. government would step in and prevent the lender from failing in a crisis.

Still watching for the Merrill spinoff........

Moody's lowers BofA's debt ratings, shares tumble

Bank of America is Doomed. Just File Bankruptcy Now

While I still have a problem with Henry Blodget still participating in the financial industry, even as a columnist, great article on Bank of America's imminent bankruptch. The full title is BANK OF AMERICA IS DOOMED, Says Chris Whalen-Stop Firing People and Just Declare Bankruptcy Now.

Whalen is arguing for a government seizure of the bank, and a reorganization. I am not so sure that is possible, but he makes a great point - 

Bank of America is rearranging chairs on the deck of the Titanic. And firing thousands of people who don't need to be fired.

BANK OF AMERICA IS DOOMED, Says Chris Whalen—Stop Firing People And Just Declare Bankruptcy Now

Merrill Brokers Next Target for BofA?

The forced departure of Sallie Krawcheck may be a sign of more than just problems at Bank of America - we may be seeing the start of an internal attack on Merrill Lynch brokers.

We all know the contempt that Bank of America has for it's own securities firm employees - witness what it did to its bank brokers when it cut their pay in half, but industry media is speculating that two of the reasons Krawcheck was canned was first, her refusal to force Merril Lynch brokers to push Bank of America products on their customers, and two, her opposition to a move to radically alter compensation at Merrill Lynch by altering the commission structure and putting brokers on a salary plus bonus.

I am sure that she was opposed to the salary and bonus plan, most right-thinking industry executives know that such a compensation scheme does nothing to benefit the broker, and will cause long term damage to the business. Bank of America will undoubtedly wrap itself up in the American flag and claim that it is a move designed to align the broker's interests with the customer, but that is simply nonsense. Wrap fee accounts did that - the broker is compensated for his success in managing the assets. Putting brokers on salary is simply a money grab - taking money from your own employees to shore up your abysmal failure on the banking side.

We all know that Bank of America is failing, and that the only profitable piece of its operations is Merrill Lynch. Again, rather than fix its problems on the banking side, it is going to attempt to cannibalize the brokerage side, and take compensation from its employees.

That is not a coghent business plan. Has BofA really forgotten what happened when it pulled a similar stunt on its bank brokers? They left in droves.

Watch for Merrill brokers to do the same. 

Related articles, courtesy of Zemanta:

• Two Interesting Rumors Circulating After The Firing Of Sallie Krawcheck (BAC)
• What Sallie Krawcheck's Ouster Means For Merrill Lynch (BAC)
• Analysis: Krawcheck ouster fuels Merrill brokers' bank angst

Merrill Loses Another Promissory Note Case

As most readers are aware, brokerage firms structure their signing bonuses for producing brokers as long term loans which are forgiven over time. When the broker leaves the firm, regardless of the reason, the firm sues to collect the balance on the loans.

Those claims are often met with significant counterclaims by the broker - after all, the broker left the firm for a reason, usually a significant breach by the firm.

While the brokerage firms often win in those cases, since the promissory note is just that, Merrill Lynch has been losing these cases lately, as it appears that Merrill's mistreatment of its brokers over recent years is finally coming home to roost.

Last month, a FINRA Panel refused to enforce a promissory note at Merrill's request. This month, another  FINRA arbitration panel denied Merrill Lynch's request to enforce a million dollar note, and ordered Merrill Lynch to pay the broker 1.5 million dollars.

The broker keeps the one million dollars represented by the note, and Merrill pays him an additional 1.5 million dollars.

 And, to add insult to injury, the Panel assessed all forum fees against Merrill.

I have represented numerous Bank of America and Merrill Lynch brokers in employment related cases, including the defense of claims on promissory notes. While I do not know anything about this case, in my view of the world, these cases are simply an outgrowth of the poor management of Merrill Lynch which led to its financial demise, and the nearly incompetent management of the brokerage firm by Bank of America. Management of both firms took steps in their own self-interest, regardless of the impact on employees and brokers and destroyed careers in the process.

Sometimes damage to employees in management decisions is unavoidable. A reputable company compensates the employees harmed by those management decisions. Merrill Lynch and Bank of America do not compensate the employees; they sue the employees.

No wonder Bank of America/Merrill lynch finds itself in financial ruin. BofA's stock traded at over $50 a share a few years ago. Today it hovers around $10.

A copy of the award is available here.

FINRA Fines Credit Suisse $4.5M; Merrill Lynch $3M - Financial Planning

The Financial Industry Regulatory Authority has hit Credit Suisse Securities LLC with a $4.5 million fine and Merrill Lynch with a $3 million fine for not properly representing data and supervising the residential subprime mortgage securitizations they sold.
The fines, which were announced by independent regulator FINRA on Thursday, were for improper handling that took place at the firms in 2006 and 2007. Each firm’s violation prevented certain investors from adequately understanding the nuances of residential subprime mortgage securities (RMBS), according to FINRA’s investigation.
RMBS are subject to certain disclosure rules when they are sold. Firms are required to provide investors with past delinquency rates for similar financial products. They are also required to tell investors how they calculated those delinquency rates.
Both Credit Suisse and Merrill Lynch failed to adequately follow those rules, according to FINRA.

Merrill Hiring Rookies

In order to combat the mass of brokers who left ML since the BofA takover, Bank of America plans to rebuild its brokerage force in 2010 by adding rookie advisors rather than competing for talent in the industry’s expensive recruiting war according to a story in Registered Rep and Financial Times. Maybe Merrill is rethinking its "strategy" of firing brokers for trumped up reasons and forcing others to leave?
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Merrill Exec to Head UBS Wealth Management

After months of speculation, UBS today named Robert McCann as its new head of wealth management in the Americas.

Mr. McCann, the former head of the brokerage business at Merrill Lynch & Co., left Merrill in January after the acquisition by Bank of America. More>>>

No More 50% Pay Cuts?

Sallie Krawcheck, Bank of America Corp.’s head of wealth management, said she won’t do “stupid things” to pay policies that might spur financial advisers to leave the bank. I guess we don't be seening any more 50% pay cuts or insulting retention bonuses from BofA/Merrill that caused so many brokers so much harm.  More>>>

No More 50% Pay Cuts?

Sallie Krawcheck, Bank of America Corp.’s head of wealth management, said she won’t do “stupid things” to pay policies that might spur financial advisers to leave the bank. I guess we don't be seening any more 50% pay cuts or insulting retention bonuses from BofA/Merrill that caused so many brokers so much harm.  More>>>

How BofA Used Merrill To Bully the Government

Some members of Congress and others have accused federal regulators of pressuring Bank of America into going through with its merger with Merrill Lynch. But records suggest it was the bank, not regulators, doing the bullying. Law.com has an analysis of this view of the issue. More>>>

USDJ Rakoff Rejects SEC-BofA Settlement.

Judge Rakoff wants the explanation behind why a Bank of America proxy statement last November misled investors about bonuses for employees at Merrill Lynch, which was about to be acquired by the bank. On Tuesday, he stated another desire: to get the SEC to better explain why had agreed to a settlement without pressing the bank’s executives harder. The judge is also questioning how anyone can judge the merit of a reliance on the advice of counsel defense, when the defendant has not waived the attorney-client privilege.

This is obviously a tough decision for the SEC, and is starting to suggest an apparent willingness on the part of the Commission to let a big player off the hook for serious violations with the payment of a significant sum of money. As we have said in the past, if this wasn't Bank of America, and instead was a small or regional firm, not only would the SEC be looking to put them out of business, prosecutors would be filing criminal charges. More>>>

Lehman Principal Protected Note Arbitrations

Spurred by an enforcement proceeding by the State of New Hampshire and a class action complaint filed against Lehman Brothers executives, retail investors are retaining attorneys to attempt to recover their investment losses in Lehman Brothers. This article from SECLaw.com examines the potential for these cases, and the defense of same.  More>>>

Is Merrill Schizophrenic?

Less than a year ago Merrill Lynch was chasing its brokers out the door with a transition bonus that was so low it was insulting for anyone producing less than a million dollars a year. Readers will recall that many Merrill Lynch brokers were faced with the choice of remaining at Merrill and taking something less than one times trailing 12 to stay, or leaving Merrill and taking something more than two times trailing 12 to leave.  I discussed the problems with the retention in the post Merrill's Retention Bonuses Come In Low.

It was not a difficult choice for many brokers, and they left. Undoubtedly, Merrill structured the retention bonus to entice the small producers to leave, as it seems that firms have decided that anyone producing less than $750,000 is not worth the trouble keeping.

But that was October, 2008. This is August 2009 and now Merrill has decided it wants small producers. While it may be caused by a sanity introduced by Sallie Krawcheck, it sure has a psychotic look to it. A complete about face in less than a year.

So, Merrill is rolling out the welcome mat for brokers of all production levels, according to InvestmentNews.com in its article, The New Merrill Mantra: We Want Broker, Brokers, Brokers.

Time to change firms and join Mother Merrill? We will analyze the package in another post but for anyone considering moving. Please have an attorney negotiate and review the compensation package. Those agreement are negotiable, and you can take some steps to protect yourself should your schizophrenic employer decide that it no longer wants to employ you down the road.

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The Final Days of Merrill Lynch

The Atlantic explores what happened behind the scenes in the final days of Merrill Lynch, when the Wal-Mart of banking took over the former Wall Street powerhouse. A great read.

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Rakoff Wants More Information on SEC-BofA Settlement

Southern District of New York Judge Jed S. Rakoff took strong exception Monday to a proposed settlement in which the Bank of America would pay a $33 million fine for not disclosing that Merrill Lynch was authorized to pay more than $5 billion in discretionary bonuses before the two entities merged in 2008.

According to Law.com, Rakoff told the parties that he had "serious misgivings" about a settlement that "lacked in transparency." The judge repeatedly expressed concern that money the Bank of America received from the government through TARP was used, "as a practical matter," to pay the bonuses and noted that the proposed $33 million fine was "a tiny, tiny fraction" of the billions of dollars the two banks paid out in bonuses in 2008. More>>>

Bank of America Fined $33 Million In Fines For Merrill Disclosure

Bank of America agreed to pay $33 million on Monday to settle federal charges that it hid from investors plans to pay billions of dollars in bonuses to employees of Merrill Lynch.The SEC accused the firm of misleading shareholders when the bank asked them to approve the deal, which was ultimately concluded under intense federal pressure as Merrill Lynch teetered on the verge of collapse. The SEC's press release announcing the charges is available at SEC Charges Bank of America for Failing to Disclose Merrill Lynch Bonus Payments, and a copy of the underlying complaint is available at SECLaw.com. More>>>

SEC eyes whether BofA broke law on Merrill bonuses

So, you are about to merge with a competitor. You need shareholder approval of the merger. The competitor has 27 billion dollars in losses, and is about to pay its employees 3.6 billion in bonuses, right before the merger.

And you don't disclose that bonus payment to your shareholders? Hmmm, maybe 3.6 billion was not material............

SEC eyes whether BofA broke law on Merrill bonuses

Financial Pros Jumping the TARP Ship

Law firms like mine, that represent financial professionals and firms, have seen a significant upswing in the number of brokers and analysts who are changing firms. With some firms offering over 200% of a broker's trailing 12 as a foregivable loan, this is really not surprising.

Many brokers would have a difficult time rejecting an offer that gave them similar products, platforms and working conditions plus a check for 200% of their last 12 months production. Of course, wire houses are not all the same, and there are significant issues to be resolved in the agreements surrounding such a move. But 200% in a check is a significant amount of money, regardless of what your trailing 12 has been.

That trend appears to be moving to other financial professionals, and we are seeing analysts starting to move. Many Merrill professionals were not happy about the move to Bank of America, and other firms, notably UBS, grabbed those unhappy brokers with those bonus offers.

Not investment bankers are moving. Smaller investment banks are enticing wirehouse investment bankers to jump ship.

These moves are undoubtedly a sign of the times. The neverending attacks on the large investment banks are causing a flight of talent. Why stay with a Merrill and risk losing your compensation because Congress has decided to pander to the masses, when you can take a package at a smaller bank, that is financially sound, and not saddled with TARP issues.

It is a growing trend. Not too good for the large investment banks, but good for the smaller ones, and  maybe good for the economy in the long run.

Just make sure those new employment packages are documented and negotiated by someone who knows the ropes.


Merrill Lynch Loses More Bankers to a 'Boutique' - WSJ.com