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TowerGroup says buy of Merrill Lynch puts B of A at top of debit, credit biz

September 15, 2008

BOSTON — With shockwaves still reverberating from the news of Bank of America's acquisition of Merrill Lynch, TowerGroup says it expects the integration of the two companies' cards businesses to be seamless and rapid. And the union will likely put pressure on American Express, TowerGroup says, since Merrill Lynch's products come with a high net-worth, network-branded card product that will directly compete with the B of A/AmEx Accolades card.   Brian Riley, research director in TowerGroup's bank-card practice, says the acquisition might cause angst to branded card issuers that offer similar products.

"The American Express Company will experience the most pressure," Riley said. "B of A currently offers the B of A/Amex Accolades card, aimed at the same high-end market. The acquisition of ML's card business allows B of A to create a dominant card product for the high-end market, by leveraging ML's innovations in deferred debit, cash sweeps and access to pooled assets."   Riley adds that the acquisition also adds an additional $13 billion in debit-card processing to B of A's existing $120 billion debit-card business. Before the acquisition, B of A processed more than twice the volume of Wells Fargo, the United States' second-largest issuer, and almost triple that of Citi.

"In a larger sense, the move substantially reorders the state of play in the U.S. retail-banking industry, pointing to new competitive constellations as this highly event-laden year lurches to its close," Riley said.