(March 28 – 09:10 ET) – Merrill Lynch says bank mergers are unlikely in 2001, with the weak economy making political approval doubtful.

“For our part, we are increasingly doubtful mergers are a 2001 event despite imminent passage of the enabling Bill C-8. Particularly given potential economy-wide job disruptions, the ‘in-market merger cost economics’ become less and less politically palatable, and regardless of improved approval process transparency, it is clear that the ultimate decision remains highly politicized,” says a new report from Merrill senior financial services analyst Jamie Keating.

With that in mind, Merrill says, “Subverting scarce management time to securing a ‘grass-roots’ vote on big bank mergers is not necessarily shareholder-value friendly.”

Merrill says that the changing of the guard at Royal Bank, with RBC DS chief executive officer Gord Nixon replacing John Cleghorn, should lead to senior management turnover at Royal this summer. The integration process at TD Canada Trust will also keep its management busy. “Moreover, continued political turmoil in Ottawa, including leadership issues, may conspire to delay the politicians’ amenability to looking at a deal. Further, the Senate has softly indicated it may have changes and would not necessarily advise banking on pre-summer bill passage.”

With all these factors tilting against mergers this year, Merrill concludes, “In summary, the risk that there is ‘no deal’ this summer has implications for holders of BMO, which we judge has $3 to $6 of merger-related premium in the stock price.”

In other banking news, Merrill notes that earnings sustainability is based on the health of corporate loans and capital markets. It notes that Charles Schwab’s warning on volume, revenue and profit has hit TD Waterhouse and that its contribution to TD earnings could go negative.