Although my head is still spinning due to the crisis of the last few days, Matt Bienfang, senior research director of TowerGroup, has already estimated the impact that Lehman's bankruptcy and Merrill's pending acquisition by Bank of America will have on overall IT spending by Wall Street. "Between Bear, Lehman and Merrill you're talking about 4-5% of the entire industry spend on technology," he notes, adding that Lehman's brokerage and wealth management business is bound to be bought and absorbed by somebody [Barclay's announced Wednesday morning it would buy Lehman's North American investment banking, capital markets operations and supporting infrastructure]. "So Lehman's technology spend won't entirely disappear, but it will be reduced." IT spending for Merrill's organization should continue, he believes, but the fact that BofA expects to reap $7 billion in savings from the deal means some cutbacks are to be expected."All in all, we're forecasting the ripples of this on the sell side will cause a 12-15% decline on overall IT spending," Bienfang says. "On the retail side, we see a decline in the 5% range on IT spending." However, on a hopeful note, Bienfang expects to see a 1-2% increase in front-office spending on technology. "The retail wealth management side has been the one line item that's held steady, so the game there is to acquire assets, make the reps happy and give them the tools to gather assets and conduct business," he says. He expects that firms will continue to buy wealth management platforms, retirement planning tools and other technology used to engage wealthy clients.

Merrill Lynch's brokerage business has 16,000 brokers and appears to be healthy. (BofA has a much smaller force of about 2,000 brokers.) "There's a big difference between the brokers at Merrill and the brokers at BofA, in terms of everything from average production to sophistication of products being sold to their clientele," Bienfang says. For instance, the average Merrill advisor produces about $750,000 a year in new business; average production at BofA is half of that. Bank of America uses Fidelity's National Financial as its clearing agent. BofA may migrate off of the National Financial platform and switch to Merrill's platform, or it may consider National Financial's new Self Clearing and Outsourcing offering. "Merrill is not opposed to outsourcing certain functions where it can benefit from scale and subject matter expertise," he says. As for Merrill's big technology projects, such as its sweeping desktop virtualization program, Bienfang expects them to survive. "They were about four years into a five-year, $1 billion spend on the brokerage desktop project; that investment has been made and you don't want to depart too much from that," he says.

What will the single biggest challenge be for the BofA/Merrill merger? Culture, Bienfang says. Personally, I've always been puzzled by the idea of "Mother Merrill" - in my dealings with Merrill Lynch, I've never sensed warmth and fuzziness. "I don't think it's the nurturing side of mother, I think it's the matriarchal side of mother," Bienfang explains. "And the idea that Merrill was doing the right thing by their employees. There's a strong sense of allegiance to Merrill, a lot of employees have spent their whole careers are there. A lot of brokers have never been anywhere else."