Merrill Lynch Securities up for sale
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One of the last remaining brokers in the Russian Federation with foreign shareholders, Merrill Lynch Securities, which was among the top ten on the market before the outbreak of hostilities in Ukraine, may be sold. The company has no customer base left, and the infrastructure is outdated and requires investment, experts warn. Therefore, the buyer is an investor unrelated to the main business, which does not exclude the resale of the company under a new name.
Two sources told Kommersant that the broker Merrill Lynch Securities (part of the Bank of America group) is up for sale. Another source in the financial market says that the deal could be closed in the coming days, and the Central Bank of the Russian Federation has already agreed on a new general director of the company. Merrill Lynch Securities and the Bank of Russia did not respond to Kommersant’s requests.
In 2021, Merrill Lynch Securities was one of the ten largest Russian investment companies in terms of commission income from providing services in the stock market. Revenue amounted to almost 2.4 billion rubles, and net profit exceeded 600 million rubles. But after the outbreak of hostilities in Ukraine, the company sharply reduced its presence on the Russian market. In the first half of 2023, revenue amounted to only 35 million rubles, and the loss exceeded 470 million rubles.
Russian legislation takes a liberal approach to the procedure for changing foreign owners in brokerage companies compared, for example, with banks, notes Anton Plokhov, head of the law firm atLegal. According to him, interested parties must follow a relatively simple procedure for the alienation of a stake in the company’s authorized capital in accordance with the requirements of the Law “On Limited Liability Companies.” The only nuance remains the requirements for the founders of a professional participant, reflected in the law “On the Securities Market,” clarifies Mr. Plokhov.
Large professional market participants interviewed by Kommersant did not receive offers to purchase a broker. However, for them such a deal might not make much sense. As Vladislav Kochetkov, president of Finam, notes, “in fact, the company has no client base left.”
According to reporting data, at the end of 2021, Merrill Lynch Securities clients were represented by companies resident in the UK (99.7%) and the USA (0.3%), and their funds exceeded 1.1 billion rubles. At the end of 2022, the amount of funds decreased to 10.6 million rubles. Taking into account the current restrictions of the Central Bank on cross-border transactions, the funds most likely remained frozen. According to Kommersant’s interlocutor in the financial market, this could be the reason for the sale of the company, rather than surrendering the license, when fulfillment of obligations to clients is required.
Mr. Kochetkov admits that the buyer may be a little-known market participant and we are actually talking about buying a brokerage license. Taking into account the “lack of a customer base and outdated infrastructure,” significant investments in development may be required, the expert explains.
In addition, “the problem of the ability to conduct business in principle may become relevant for the company,” taking into account restrictions on cross-border capital movement and access of Russian investors to Western exchanges, notes Mr. Plokhov. According to Kommersant’s interlocutor in the financial market, who is familiar with the situation, the buyer is an investor not associated with the brokerage business.
However, none of these factors necessarily means the company’s operating loss, but “is a consequence of the drying up of the portfolio of financial instruments (lack of increasing financial instruments on the balance sheet of the brokerage company) under management,” says independent financial analyst Andrei Barkhota.
Experts allow the brokerage company to be resold to another owner in the future. Including under a different name, since, according to Mr. Kochetkov, the previous brand will most likely not be preserved when the beneficiary changes, “to avoid risks for the parent company.”
Mr. Barhota believes that the organization may be of interest to banks and insurance companies with an active retail client base of at least 500 thousand people. The integration of the brokerage structure, the expert explains, will make it possible to fill the client base with investment products.
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