As part of its global strategy to move away from international wealth management operations, Bank of America Corporation (BAC - Analyst Report) is finally divesting its 49% stake in Mitsubishi UFJ Merrill Lynch PB Securities Co., its joint venture (JV) with Mitsubishi UFJ Financial Group, Inc. (MTU - Analyst Report). Though the financial terms were not disclosed, the market rumors peg the deal at about ¥40 billion ($482.3 million).
Following the completion of the divestiture on Dec. 26, Mitsubishi UFJ Securities Holdings Co., MUFG’s main brokerage unit, will have a 51% stake, while Bank of Tokyo-Mitsubishi UFJ Ltd. will hold 49% stake. Moreover, BofA, through its Japanese brokerage unit – Merrill Lynch Japan Securities Co. – will continue to offer mutual funds, derivatives and structured products to its private banking clients.
The JV was formed in May 2006 by MUFJ and Merrill Lynch Co. Subsequently, during the height of the financial crisis in 2008, BofA acquired Merrill Lynch and hence, the JV was integrated into BofA’s operations. Currently, the JV employs nearly 440 people.
The JV provides wealth management services to clients with assets worth more than ¥100 million. It remains a profitable venture, with profits of nearly ¥6.8 billion ($86.1 million) and ¥1.8 trillion of assets under management in the fiscal year ended March 31, 2012.
Yet, BofA decided to vend its stake in the JV, as the company has been trying to consolidate its global operations and doing away with its non-core businesses. Over the last two years, the company has completed the divestiture/closure of more than 20 non-core assets to strengthen its capital position in order to improve efficiency.
In August 2012, BofA announced the divestiture of its international wealth management operations to Julius Baer Group for nearly CHF860 million ($882 million). The deal, which is still subject to regulatory approvals, is expected to close by the end of this year or early next year. The divestiture did not include the aforesaid JV.
Moreover, for MUFG, the purchase of the remaining JV stake will further strengthen its dominance over the wealth management market as well as stabilize the revenue base. This would also enable MUFG to further improve its relationship with Morgan Stanley (MS - Analyst Report), with whom it has three separate JVs.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. The company has made considerable progress in strengthening its capital base. We believe that the above mentioned divestiture will further aid the company in attaining its goal. This could serve as a slight positive for the company, thereby leading to modest upward estimate revision. This, in turn, could improve the company’s Zacks Rank.