Bank of America, Merrill Lynch In Merger Talks

Is the point of this discussion topic to talk down Lehman?

"Is the point of this discussion topic to talk down Lehman?"

rintintin, that has got to be one of the funniest posts ever. "Talk down Lehman"? At this point?

LMAO.

Steve, you are a very insightful man. I have a great deal of respect for you. I only hope that you went long on Merrill on Friday so that you can profit from your wisdom. Please keep sharing your views as I for one find them to be most profitable. You were the poster that inspired me to sell my downtown apartment several months ago for a price that I would never get today, and you were the only person I saw arguing for this merger. Keep up the good work.

Lehman was toast even if someone was going to purchase them. This BoA Merrill rumor was clearly leaked to forestall the likely carnage that will take place tomorrow in the financials.

you people need to learn that it does not matter who merges with who...after all the measures that have been taken has anything stopped this credit crunch? The government is just delaying this and turning it into a slow motion car wreck.

flmd - I agree that people are already looking past LEH with the Merrill talks. The leak was probably more like a shout out to everyone they could think of. I think the Gov't turned this into a slow car wreck when it helped with the Bear deal.

Furthermore...BoA does not have the balance sheet to purchase Merrill and all the crap they still have on their books. Merrill knows that the shorts will come for them now that Lehman is done so they sent out this announcement to get a rally going.

Merrill does have to sell themselves but it will be to a foreign entity...Morgan Stanley and Goldman Sachs will also have to sell themselves to a foreign bank as well.

I expect AIG to have some bullshit anouncement before the markets open tomorrow in the hopes they can keep the jackels off of them as well.

so what do you think the Lehman outcome will be?

American International Group Inc. (AIG:US): The insurer will announce a restructuring plan tomorrow that may include the sale of assets, the Wall Street Journal said on its website without citing anyone. The stock tumbled 31 percent to $12.14 in regular trading.

off bloomberg

$29

Bank of America,
Merrill Lynch
In Merger Talks
By MATTHEW KARNITSCHNIG, SUSANNE CRAIG and DENNIS K. BERMAN
September 14, 2008 7:07 p.m.

Bank of America and Merrill Lynch & Co. Inc. are in merger discussions, according to people familiar with the matter.

Details of the terms under discussion weren't immediately clear but Merrill's board was reportedly meeting to approve an offer at $29 a share, which would value the firm above $40 billion.

"BoA does not have the balance sheet to purchase Merrill"

Yes they do. You need to learn how to read a balance sheet.

There are 4 extraordinarily well-run firms (5 actually): JPM, BAC, Goldman, Morgan Stanley, and US Bank. Add in Wells Fargo. Okay 6.

Thanks mh23. I did predict Lehman, I said BofA would go for Merrill, JPM will likely snag WaMu - soon. I said the independent iBank model doesn't work anymore: they have to assume too much risk to make money. I don't know anything about insurance companies, so I can't comment on AIG. Citi is a concern - but talking about too big to fail!

This is the beginning of the end of Manhattan real estate, and also the beginning of the end of the financial crisis. Once WaMu is resolved - and you can bet your sweet bippie that they're working on it now - the world will be a happier place.

Also - uptick rule reinstated, naked shorting ban enforced, and watch in the medium-term (not the short-term because the government doesn't like to admit it's wrong) the replacement of mark-to-market for long-term investments with the discounted cash-flow method. Mark-to-market makes no sense for assets held long-term.

And watch for the complete re-regulation of Wall Street, which is why I'm not sure if Goldman and Morgan Stanley will survive: they can't compete with banks' cheap deposits.

Bravo Steve.

"Mark-to-market makes no sense for assets held long-term." - Incorrect. One of the reasons why the subprime crisis has taken so long to unravel is because key players have been reluctant to mark their assets to market and kept using models that you're advocating.

"Beginning of the end of Manhattan real estate"

What does that mean? Are you expecting enormous drops in value? You've proven yourself right on your other predictions...would be very curious to hear what you have to say about this.

Merrill Lynch, the world's largest broker, agreed to be acquired by Bank of America for $29 a share, or $43.5 billion, after being pressured into a deal by federal regulators.

Merrill [MER 17.05 -2.38 (-12.25%) ] agreed to the BofA [BAC 33.74 0.68 (+2.06%) ]sale, which represents a huge premium to its closing price on Friday of $17 a share, after talking to several other potential acquirers, including Morgan Stanley [MS 37.23 -1.48 (-3.82%) ].

Morgan turned down a possible acquisition because it couldn't examine Merrill's books in 48 hours, a person close to the matter said.

Merrill plans to make an internal announcement to employees sometime between 8 and 9 am Monday morning.

Merrill came under pressure to find a merger partner came after its liquidity began "evaporating" Friday and the firm became worried about a sharp decline in share price on Monday, according to people inside the firm.

Merrill is expecting huge job losses with the merger. The brokerage division will stay intact, but there will be large-scale reductions in workforce. CEO John Thain is also expected to leave.

"It's over," said one senior Merrill official.

The deal comes as Lehman Brothers Holdings [LEH 3.65 -0.57 (-13.51%) ] prepares to file for bankruptcy after failing to find a buyer.

A Merrill Lynch spokeswoman and a Bank of America spokesman could not immediately be reached for comment.

Merrill, stuck with some of the same toxic debt -- much of it mortgage-related -- which torpedoed Lehman's balance sheet, has been hit hard by the credit crisis and has written down more than $40 billion over the last year.

Last month, Thain arranged to sell over $30 billion in repackaged debt securities to Dallas -based private equity firm Lone Star Funds.

"I'm surprised that Merrill Lynch would want to sell at this point," said Bill Fitzpatrick, an analyst at Optique Capital in Milwaukee. "They seem to be taking steps to improve their business. They have sold off a lot of their toxic assets. Merrill seems to be progressing to me."

In spite of these exposures, the bank is seen by some as undervalued, in part because of its massive brokerage business, which analysts have said is worth more than $25 billion.

The brokerage is the largest in the world by assets under management and number of brokers.

Merrill also has about a 45 percent stake in the profitable asset manager BlackRock, worth more than $10 billion.

"It could be a powerful fit," said Rick Meckler, chief investment officer at LibertyView Capital Management in New York.

But he added: " Merrill Lynch has significant exposures and Bank of America would need enough balance sheet to handle that."

Meckler also noted that the due diligence Bank of America would need to do on Merrill's books would be a serious undertaking, given the complexity of the company's exposure to mortgage-related securities and other complex debt.

Following the Lehman Saga:
Farrell: Parsing the Faltering Financials
AIG Pursues Liquidity Plan
Lehman to File for Bankruptcy
WaMu Being Eyed by Banks
Who Would Want Lehman?
Merrill, BofA in Merger Talks
With the brokerage and the BlackRock shares worth more than $35 billion combined, and Merrill's market capitalization at around $26 billion, investors are ascribing a negative value to the investment bank, implying huge potential embedded losses.

On the other hand, it would not be the first time Bank of America has done a quick acquisition.

In 2005, the bank bought credit card company MBNA after less than a week of due diligence, with Lewis saying the company was comfortable with the acquisition because it knew the people and business well.

Bank of America under Lewis has in fact become renowned for large acquisitions and it has spent over $100 billion since 2004 buying other companies.

Most recently it acquired troubled mortgage lender Countrywide Financial Corp and -- although many were skeptical about this purchase -- veteran analyst Dick Bove said last week the takeover could prove to be a master stroke by Lewis, since the government takeover of mortgage agencies Fannie Mae and Freddie Mac could fuel business for other lenders.

— Reuters contributed to this report.

http://www.cnbc.com/id/26708319

Merrill is expecting huge job losses with the merger. The brokerage division will stay intact, but there will be large-scale reductions in workforce. CEO John Thain is also expected to leave.

"It's over," said one senior Merrill official.

The deal comes as Lehman Brothers Holdings [LEH 3.65 -0.57 (-13.51%) ] prepares to file for bankruptcy after failing to find a buyer.

stevejhx- "This is the beginning of the end of Manhattan real estate, and also the beginning of the end of the financial crisis. Once WaMu is resolved - and you can bet your sweet bippie that they're working on it now - the world will be a happier place."

I agree, however we are still facing huge obstacles. The economy stinks and unemployment is going to 8% by years end. I wouldn't be so fast to call an all clear. As far NYC RE. it's going to get crushed. I have been predicting DOW 9800 and NYC RE decline of 30-40%. At those level I'm a buyer. Take it for what it's worth.

No more Wall Street as a game

No more Real Estate as a game

The two are connected. The credit crunch will turn into a capital crunch. Interest rates will skyrocket but not even keep pace with inflation. Hang on. It's going to be a bumpy ride.

Bank of America Reaches Deal for Merrill
By MATTHEW KARNITSCHNIG, CARRICK MOLLENKAMP and DAN FITZPATRICK
September 15, 2008

In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter.

Driven by Chief Executive Kenneth Lewis, Bank of America has already made dozens of acquisitions large and small, including the purchase of ailing mortgage lender Countrywide Financial Corp. earlier this year. In adding Merrill Lynch, it would control the nation's largest force of stock brokers as well as a well-regarded investment bank.

A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago, and half its all-time peak value of early 2007. Merrill shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman's looming demise.

"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."

Bank of America and Merrill Lynch wouldn't comment on any discussions.

Merrill would give Bank of America strength around the world, including emerging markets such as India. And Merrill is also strong in underwriting, an area Bank of America identified last week at an investors' conference where it would like to be more aggressive.

Dramatic Deal

A deal would be all the more dramatic because Merrill, upon the arrival of Chief Executive John Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg. That Merrill has opted to sell itself thus underscores the severity of crisis.

The integration of Merrill, known for its proud, and sometimes testy, brokerage force, could turn out to be the biggest test of Mr. Lewis's career. Typically, the bank has made one big deal and then taken time to carefully merge the two institutions. But in recent years, acquisitions have come at a furious pace. In 2004, the bank bought FleetBoston Financial Corp. A year later, the bank agreed to buy MBNA Corp., the credit-card firm. In 2007, Bank of America bought Chicago's LaSalle Bank as part of the break-up of Dutch bank ABN-Amro Holding NV. Then came this year's purchase of Countrywide.

As of Sunday evening, a deal had not yet been signed, said people briefed on the discussions. And other last-second bidders could emerge from the woodwork. Yet with news of the Bank of America talks breaking Sunday, it became all the more difficult for Merrill and Mr. Thain to rebuff a deal. Should the talks collapse, most on the Street were expecting Merrill's shares to fall even further amid widespread worries about independent broker-dealers.

Inside the Fed meetings in Lower Manhattan this weekend, there was a general worry that Merrill could be the next to fall after Lehman. Through the weekend, federal officials including Federal Reserve Bank of New York head Timothy Geithner made it clear that they strongly encouraged a deal to sell Merrill, said people familiar with the matter said.

If struck, a deal would come together at breakneck speed. On Friday, Bank of America's top executives were pushing for a deal with Lehman Brothers, scrambling to perform due diligence on Lehman's books. Just 48 hours later, they were locked in discussion with Merrill and its top executives.

During the flurry of historic dealmaking this weekend, Merrill approached Morgan Stanley about a possible deal, which would have united two of Wall Street's oldest brands, according to a person familiar with the talks. But the talks didn't go anywhere because there wasn't enough time for Morgan Stanley to review the idea and Merrill wanted to do the deal quickly, this person said. Merrill was also stepping up talks with commercial banks both in Europe and the U.S. While Mr. Thain had once orchestrated a trans-Atlantic deal for his old firm, NYSE Euronext, in this race, a U.S. deal proved the quickest, best option for Merrill.

'The Ultimate Realist'

"I think John Thain at Merrill is the ultimate realist," Ms. Bush said, the analyst, who expected federal regulators to bless the deal by relaxing deposit limits for bank-holding companies. "He knows if Lehman goes under he is not far behind. He wants to cut the best deal he can."

In the past 15 months, Merrill and Lehman have both had tens of billions of dollars worth of risky, illiquid assets carried on balance sheets that were leveraged at a debt-to-equity ratio of more than 20 to one. When the credit crunch hit in mid-2007, the assets kept deteriorating in value and couldn't easily be sold, eating into both firms' capital cushion. Recently, Lehman's balance sheet topped $600 billion and Merrill's $900 billion.

Merrill's one-time chief Stan O'Neal was ousted in October 2007, and his successor, Mr. Thain, tried to repair the firm's balance sheet by arranging an infusion of more than $6 billion in capital starting last December by investors led by Temasek Holdings, a Singapore government investment fund.

But as the losses kept coming this year, Mr. Thain was forced in July to sell a huge slug of more than $30 billion in collateralized debt obligations at a price of just 22 cents on the dollar. That step required the firm to raise still more capital, under painful terms that re-priced some of the December stock sales at about half the original price.

One top Merrill executive lamented the pending sale of the venerable company, saying "it's sad but inevitable." This executive said that he was pleased it was Merrill, rather than rival broker Morgan Stanley, that was hatching a deal with Bank of America.

The fate of both Morgan Stanley and Goldman Sachs will be front and center Monday morning, as the Street wakes up to a world where the independent broker-dealer are increasingly thin in number.

This tumultuous year has made it clear that investment banks like Lehman and Bear Stearns face vulnerabilities that commercial banks such as J.P. Morgan and Bank of America are less prone to. The investment banks must constantly depend on short- and medium-term money markets to fund their operations. Commercial banks, meanwhile, can count on more stable consumer deposit bases.

In a highly volatile market, some advantages accrue to banks that can rely on those more stable deposit bases.

At Merrill, "we became convinced that for investment banking to be possible, we need to be part of a much bigger capitalized commercial bank," the Merrill executive said.

Merrill acted to avoid the same fate as Bear Stearns and Lehman, some analysts said. "Bear didn't think it could happen to them and Lehman didn't think it could happen to them either," said analyst David Trone of Fox-Pitt, Kelton. "I think management looked at Bear and Lehman and said we're not going to go down that slope, we're going to try and get our shareholders something before we end up in the same camp."

--Randall Smith contributed to this article.

Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com, Carrick Mollenkamp at carrick.mollenkamp@wsj.com and Dan Fitzpatrick at dan.fitzpatrick@wsj.com

I knew this was going to be bad, I didn't know it was going to be THIS bad....

anyone know what the Merrill merger will mean for mortgage lender First Republic Bank (which Merril owns)?

nyc10022- Like I have said worse then most can imagine. I have been say that CEO's have been ling to the shareholders and investors for over a year. I'll say it again, it's not over. Dow will fall another 15-20%. This is not just a bad day, it's historical.

"using models that you're advocating."

Wrong. Those models calculate a hypothetical market price for illiquid assets. Discounted cash flow is a much easier and more reliable way of calculating value for long-term assets.

"DOW 9800"

Not going to happen. I briefly thought that yesterday when it looked like LEH would fail, but the Merrill/BofA deal changed that - BofA is paying above book, indicating that those marked assets are worth more than they're marked to.

There will be some short-term turmoil, but with the exception of WaMu - to be grabbed by JPM - the dust is starting to settle. They're the last ones heavily involved in the mortgage mess, except maybe Wachovia, where I see a deal with Wells Fargo, creating 3 national banks: JPM, BAC, Wells. Notice how none of them ever issued a subprime loan.

"Are you expecting enormous drops in value?"

50%, to 2003 levels, just like is happening in the rest of the country. Not only are there no bonuses - you think all those bonus provisions at LEH are going to get paid? - there are no jobs, and no future for the types of bonuses that existed in the past.

Who is going to buy all these luxury condominiums aimed at a single target audience? No one. Who is going to have to sell their luxury condominiums? Lots of people.

Or maybe the foreigners will come marching in.

So, does this pretty much settle the question once and for all that London is the Financial Capital of the World?