Merrill Lynch in $1B Net Banking Deal

U.S. investment bank Merrill Lynch & Co. and international banking group HSBC Holdings announced a $1 billion (US$) deal Tuesday to form a new online global banking and brokerage company.

The new company, to be known as Merrill Lynch HSBC, will be an equal investment joint venture that will combine Merrill Lynch’s global investment expertise with HSBC’s international banking concerns.

The bank will debut in the fourth quarter of this year in the UK, and shortly thereafter in Japan, Germany, Australia, Canada and other parts of the world.

Global Expansion in Fast Forward

Significantly, the two companies, long known in the banking and investment world as conservative entities, are making one of the boldest online banking moves to date. Only New York-based Citigroup has previously attempted to build a worldwide network in retail banking.

“This initiative shows our determination to use the Internet to build new businesses in the rapidly expanding global market for personal investments,” HSBC Holdings Chairman John Bond said in a statement. Additionally, the venture will enable the two companies to capture the lion’s share of the rapidly growing Internet banking industry just as it is ready to take off.

Michael Marks, head of Merrill Lynch European operations, said that by joining forces online, the two companies could expand internationally much faster than either could have managed alone.

Affluent Investors Targeted

The new concern will reportedly target customers with individual assets of between $100,000 and $500,000. Based on deposit accounts, the venture will allow customers to invest in stocks, bonds and pooled funds, tailoring their investments to accommodate tax structures of their local markets.

Ultimately, the service will also offer online bill payment, mortgage loans and credit cards. Other services will include research, equity dealing, cash management and financial planning.

The bank estimates that up to 50 million households in Europe, Japan, Latin America and the Asia-Pacific area will be active Internet users and investors over the next decade.

Added Credibility for Online Banking

With two of world’s major financial players combining their assets, the new venture gives the concept of online banking added credibility. HSBC is Britain’s largest bank by asset value, and ranks second in Europe. Merrill Lynch ranks high on the short list of U.S. full-service brokerages.

Each company has made moves toward electronic commerce, beginning with HSBC’s launch of NetTrader last summer, an online trading service in Australia.

For its part, Merrill Lynch quietly moved in January to register an Internet-heavy mutual fund with federal regulators. Upon announcing that initiative, the company said the fund would seek out innovative Internet-only companies, including those using e-commerce or Internet communications to promote business.

Today’s announcement of the launch of Merrill Lynch HSBC comes at a time when both companies are in a position of financial strength. HSBC Holdings posted a 21 percent rise in earnings in for 1999, while Merrill Lynch reported record earnings for the first quarter of this year. The company posted net income of $1 billion, up 70 percent from the $609 million it earned one year ago.