BANK OF AMERICA SIGNS DEAL TO BUY MERRILL LYNCH
Bank of America last night bought embattled brokerage giant Merrill Lynch for at least $44 billion, or $29 a share – as the impending collapse of Lehman Brothers left Wall Street scrambling to stave off a chain reaction that could bring down other financial titans.
BofA had put off making a solid offer for Merrill, hoping its stock could fall further as more writedowns on mortgage assets continued taking their toll.
But over the weekend, Merrill CEO John Thain approached BofA CEO Ken Lewis, asking for a solid offer.
Shares in Merrill, which has already reported tens of billions of dollars in losses, closed Friday at $17.05, and have plunged more than 68 percent over the past year.
“Ideally, BofA wanted to wait to see if Merrill could be acquired cheaper, but Thain pressed the bank to secure a deal after learning they were backing away from doing anything with Lehman,” said one source.
“A merger between Merrill and Bank of America is a good idea,” said Richard Bove, an analyst at Ladenberg Thalmann & Co. in Florida.
“If Lehman fails, the next bank to be attacked would be Merrill. They are attempting to forestall that attack by linking with Bank of America.”
Merrill has about 60,000 employees worldwide, some 8,000 of them in the city.
It’s headquartered in the World Financial Center.
The firm’s most valuable asset is its 16,000-strong brokerage operation – and those employees are almost certain to be retained by BofA.
BofA matches up well with Merrill. It could use the company’s giant brokerage operation to mine new customers for its retail banking, business loans and other products.
While Lewis had said earlier this year that he’d had “all the fun” he could stand from investment banking, most analysts believed that was merely a knee-jerk reaction to the writedowns BofA took as a result of the credit crisis.
A deal would keep Merrill, the next smallest independent investment bank after Lehman, from having to write down more of its mortgage portfolio and possibly be forced into raising more capital and further diluting shareholders’ equity.
BofA recently bought Countrywide Financial at a bargain basement rate and now holds its portfolio of mortgages, which range from sub-prime to relatively safe loans it extended to buyers with good credit.
But even the best mortgages could fall into default as the housing market continues to struggle.
In December 2007, Merrill Lynch announced that it had sold 91.7 million shares to Singapore investment fund Temasek at $48 a share to raise $4.4 billion. Temasek owned 9 percent of Merrill as of March 31.
It’s not clear whether Temasek would lose anything in a merger with BofA.