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Crisis set to create new Wall Street order, says Greenwich Associates

The merged entity of Bank of America and Merrill Lynch could have top five investment banking relationships with 55 per cent of large US companies, according to a report by Greenwich As

The merged entity of Bank of America and Merrill Lynch could have top five investment banking relationships with 55 per cent of large US companies, according to a report by Greenwich Associates.

At the end of June, approximately 40 per cent of large US companies used Bank of America as one of their top five investment banks and roughly a quarter used Merrill Lynch in that capacity.

In a pro forma analysis that adds the two relationship bases together, Greenwich Associates shows that the merged entity could have top-five investment banking relationships with roughly 55 per cent of large US companies.

It could also hold the title of lead investment bank to approximately 20 per cent of companies.

Greenwich Associates says the combination would vault the merged firm into the very top ranks of the US investment banking industry alongside market leaders JP Morgan and Goldman Sachs.

Bank of America/Merrill Lynch would rank second only to the combined JP Morgan/Bear Stearns in terms of top-five relationships – more than 60 per cent of large companies name the aggregated JP Morgan/Bear Stearns as a top-five investment bank.

In terms of lead banking relationships, the new Bank of America/Merrill Lynch would rank third behind only Goldman Sachs and JP Morgan/Bear Stearns, which are used as lead investment banks by more than a quarter and 22 per cent of large US companies respectively.

‘Never before have three banks dominated corporate investment banking relationships to the extent that this troika could,’ says Greenwich Associates consultant Jay Bennett.

However, the report says there are several other contenders for the investment banking business of large US companies, namely Citi and Morgan Stanley, each of which is used as a top-five investment bank by approximately 40 per cent of large US companies and as a lead bank by roughly 12 per cent.

Among the other options for companies in need of investment banking services are Credit Suisse and the merged Barclays/Lehman Brothers, each of which is named as a top-five investment bank by about a quarter of large US companies.

Greenwich Associates says one factor that will play a key role in determining the sustainability of existing relationships is the quality of investment banking service the merged banks are able to deliver to companies.

As of June, US companies were unequivocal in naming Goldman Sachs and JP Morgan/ Bear Stearns as the highest quality investment banks – a ranking that takes into account banker, M&A, and equity capital markets capability.

Both firms score far above the industry average on the Greenwich Quality Index, which compiles quality ratings awarded to banks by their corporate clients in a variety of investment banking service categories.

Greenwich Associates says the merged Bank of America/Merrill Lynch has the potential to establish itself alongside Citi in a close second tier in terms of service quality – if management was to execute the combination in a way that preserved the strongest features of each bank.

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