With new regulations cutting into revenue and profits at large banks, it looks like Bank of America (NYSE:BAC) and others are responding by putting more of an emphasis on the investment banking side of the business, which has been the key revenue and profit generator for the banks over the last year.
In response to that focus, Bank of America hired back two former Merrill Lynch employees who had left the company before and after they were acquired by BofA.
Returning are Sam Chapin and Tood Kaplan, who had been senior investment bankers at Merrill for a number of years. Chapin had been at Merrill for 26 years while Kaplan had worked there for 22 years. Chapin had left just before the takeover of Merrill Lynch by Bank of America, while Kaplan left in November, 2009.
Of course the down side is investment banking can be notoriously cyclical, and includes a strong element of risk, but then again that’s no different than the risks taken on by the big banks in relationship to mortgages and derivatives, so that makes it somewhat even, although many of the mortgages originated could have been managed better, whereby they wouldn’t have been such a strong risk otherwise.
To give an idea how important the investment banking division has been to Bank of America over the last year, consider it added about $7.18 billion in earnings to the company, over double what its other operating segments did. The unit also generated $20.63 billion in revenue for 2009, the third-best performing segment at the giant bank in that regard.
The bottom line is investment banking makes big money, and the addition of these former Merrill Lynch heavyweights confirms this is the direction Bank of America is going – at least in the mid-term – to look for increased profits.
Sam Chapin and Tood Kaplan will report directly to BofA investment banking head Tom Montag.
