Merrill Lynch is to pull out of its Internet joint venture with HSBC, citing difficult trading conditions. The two firms have agreed in principle that Merrill Lynch HSBC (MLHSBC) will be integrated into the HSBC Group.
MLHSBC was formed as a 50:50 joint venture between HSBC and Merrill Lynch in April 2000 to provide direct investment and banking services over the Internet to mass affluent investors outside the US. The company currently operates in Australia, Canada and the UK.
However, the two firms say economic conditions and low online investor volume have created a difficult trading environment for the joint venture and business expansion plans have been postponed for the time being.
Following a strategic review of the joint venture, it was considered that the business could be developed more effectively if integrated within the HSBC Group rather than remaining as a joint venture. The decision also reflects Merrill Lynch's review of its international retail operations in the light of changed market conditions.
Going forward, MLHSBC will enjoy more direct access to the resources of HSBC. It is intended that the business will continue to use Merrill Lynch as part of its name and clients will still have access to Merrill Lynch research for two and a half years. Merrill Lynch will also continue to provide trading and settlement services for a transition period.
Keith Whitson, HSBC's group chief executive and chairman of MLHSBC, states: "HSBC remains confident in the long-term prospects for MLHSBC's business. We are pleased that the new structure allows for a continuing relationship with Merrill Lynch, including access to Merrill's research for MLHSBC clients."
Merrill Lynch does not envisage a material impact to its financial results for the 2002 second quarter or future periods as a result of this agreement. As at 31 December 2001, the net asset value of MLHSBC was $109 million.