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WALL STREET JOURNALBank of America agrees to buy Merrill, report says
Sunday September 14, 9:36 pm ET
By Madlen Read and Tim Paradis, AP Business Writer
Bank of America agrees to buy Merrill Lynch for about $44 billion, Wall Street Journal says
NEW YORK (AP) -- Bank of America Corp. has agreed to buy Merrill Lynch & Co. for about $44 billion, or around $29 a share, according to The Wall Street Journal. A deal between the two big financial companies would lift the uncertainty that has shrouded Merrill Lynch since the start of the credit crisis a year ago.
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A spokeswoman for Merrill Lynch declined to comment on the report. A spokesman for Bank of America also declined comment.
Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest and most widely recognized brokerage. A combination of the two will create a global banking giant involved in everything from fixed-income trading to credit card lending to rival Citigroup Inc., the biggest U.S. bank in terms of assets.
However, the deal does not come without risks. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses, and its stock has been sliding.
At $29 a share, Merrill shareholders would get a 70 percent premium over the company's Friday closing stock price of $17.05. The stock has traded between $16.60 and $78.66 a share over the past 52 weeks.
"For BofA to step in and offer a premium strikes me as being imprudent. BofA could get a much better deal if they just sat and waited," said Ladenburg Thalmann analyst Richard Bove.
And Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.
Major banks and brokerages met this weekend with government officials to try to formulate a rescue of Lehman Brothers Holdings Inc. The withdrawal of Bank of America, along with the pullout of Barclays PLC from the talks, raised the worry that Lehman might be forced to file for bankruptcy protection.
Many market participants believe Merrill Lynch -- the first of the major financial services firms to oust its CEO after the credit markets seized up last year -- might have been the next firm to lose the confidence of its investors, counterparties clients.
Lehman's shares fell a stunning 77 percent last week to $3.65 a share, but Merrill's also performed poorly, dropping 36 percent.
Merrill Lynch, whose current CEO is John Thain, is a more attractive takeover candidate to Bank of America than Lehman is, however, given its size, scope, and foothold in the retail market.
"This is the ultimate New York institution," said Jim Wilcox, professor of financial institutions at the University of California, Berkeley's Haas Business School. "Bank of America has had designs on Manhattan one way or another for some time."
And while Merrill's books are far from clean, there is less uncertainty about its financial health.
"It's awfully difficult to get anyone to take on a fundamentally insolvent institution. And if that's the concern that people had about Lehman, it's a much tougher sale," Wilcox said.
In July, Merrill sold its stake in financial news and data provider Bloomberg LP for $4.43 billion to raise capital, and then sold a huge chunk of its toxic asset-backed securities and issued new stock to raise another $8.5 billion.
Merrill Lynch, founded in 1914, has long been known for its independent spirit on Wall Street, with its army of 16,000 brokers globally nicknamed the thundering herd. It has also been nicknamed "Mother Merrill" because young traders are often nurtured and promoted through the ranks rather than going outside the company.
One such trader was David Komansky, who spent 35 years with the firm and was its CEO from 1996 to 2002. He rebuffed numerous offers through the years by banks looking to acquire the company, while many of his rivals consolidated. He retired from the company, and handed the reins to Stanley O'Neal -- whom Thain replaced last November.
Bank of America's roots go back to the Massachusetts Bank in the late 1700s, but it was based for decades in San Francisco and had largely a West Coast presence. But a series of acquisitions including New England's Fleet Bank and North-Carolina based NationsBank turned it into a bank with a more national presenceto see it underperform.
HOGWASH, BOFA HAS NOTHING TO DO WITH MASSACHUSETTS
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