MERRILL LYNCH SALE:BANK OF America's $50 billion (€35.2 billion) acquisition of Merrill Lynch marks the end of a storied name in American finance, but also creates the nation's biggest bank by far.
The purchase would end the 94-year independence of Merrill, Wall Street's third-largest bank, and pair it with a banking behemoth that has announced more than $150 billion of acquisitions in the past five years.
Bank of America would pass Citigroup, the largest bank by assets, in size.
In afternoon trading yesterday, Bank of America tumbled 19 per cent, wiping out about one-fifth of its $153.9 billion market value, while Merrill rose 12 per cent.
The merger values Merrill at 70 per cent above its Friday closing price.
Analysts said the merger magnified potential credit risks for Bank of America, given that it is already digesting mortgage giant Countrywide Financial, which it bought in July, in a troubled US economy.
"There's some concern they might have bit more than they could chew," said Marc Pado, US market strategist at Cantor Fitzgerald in San Francisco.
Yesterday's merger deal came together in less than two days - after Merrill chief executive John Thain called Kenneth Lewis, his counterpart at Bank of America, to propose a combination.
This came as Mr Thain, other top industry executives and officials from the US Federal Reserve had huddled in emergency meetings in downtown Manhattan over the weekend to ponder the fate of Lehman Brothers Holdings.
The shotgun merger was similar to JP Morgan Chase's agreement to buy Bear Stearns in March, except that the Bear purchase had the financial backing of the Fed. There was no such backing this time, and Mr Lewis said there was "absolutely no pressure" from the Fed to buy Merrill.
"This was the strategic opportunity of a lifetime," Mr Lewis said at a news conference with Mr Thain in Bank of America's new offices in New York.
Merrill shares had fallen precipitously in the past week as worries grew that it could become Wall Street's next casualty.
Adding Merrill would more than double the size of Bank of America's investment banking unit, and give it the largest retail brokerage and a dominant position in wealth management. It would also get Merrill's 45 per cent stake in asset manager BlackRock.
Bank of America was already the nation's largest retail bank, credit card issuer and mortgage provider.
"This creates the company it would have taken a decade to build," Mr Lewis said.
The disappearance of Merrill would remove the third major New York-based financial services company in less than a year, after Lehman and Bear.
New York governor David Paterson said Wall Street might lay off 30,000 workers in a worst-case scenario.
Standard Poor's cut Bank of America's long-term credit rating one notch to "AA-minus".
Moody's Investors Service said it may cut its "Aa2" rating, its third highest grade. Fitch Ratings affirmed its "A-plus" rating, its fifth highest.
"The deal offers large upside over time, but comes with a lot of risk in the near term," wrote UBS analyst Matthew O'Connor, who rates Bank of America "neutral".
Mr Thain took over Merrill last December, barely a month after the ousting of his predecessor, Stanley O'Neal.
Merrill had a $19.2 billion net loss in the last year and had taken more than $40 billion in writedowns.
"This isn't necessarily the outcome I would have expected when I took this job," Mr Thain acknowledged.
- (Reuters)
