More Banks Get into the Brokerage Business

Banks are spinning their tires furiously to make back those revenues blocked by new regulations from Uncle Sam. But one area where they could make traction is in brokerage services – and more and more big banks are getting in on the action.

From the banking industry’s point of view, they have no choice. While the Federal Deposit insurance Corp. points out that U.S. banks did earn $18 billion in the first quarter of 2010 – that’s the highest amount since the first quarter of 2010. (Bank industry officials say that new financial reforms could cost them billions.) In addition, Business Week estimates that bank assets have declined by a “record 5.3%” in 2009, while consumer credit fell by 6.6% - the most since World War II.

To fight back banks are looking to turn their banking customers into brokerage customers.

Bank of America (Stock Quote: BAC) is the latest bank entrant pushing harder into the asset management business. Bank of America Merrill Lynch (the bank purchased Merrill Lynch in July, 2009) announced on June 17 that it would create a new online brokerage service that would compete with firms like Charles Schwab (Stock Quote: SCHW) for the less-affluent investor consumer marketplace.

The new brokerage service is called Merrill Edge, and it’s aimed squarely at investors – mostly younger ones – who have less than $250,000 in investable assets. Bank of America is so serious about Merrill Edge that it is transferring 500,000 existing online brokerage clients to the new service this summer.

How much money does bank of America expect to net via Merrill Edge?

The bank will charge $8.95 per trade but will offer customers with more than $25,000 in a Bank of America account 30 free online equity trades per-month. The emphasis is completely on cross-selling. Merrill Edge customers will be able to link their accounts to Bank of America’s full menu of services, including banking, credit, retirement and investments. That should trigger more bank fees as Merrill Edge customers move from platform to platform as they use more bank services.

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