Bank of America - Merrill Lynch Merger

[The Voice of Reason]

Commoner, I think if I recall many of the companies that became BHCs actually bought failing banks. if they did not they sure made ovetures to do so.

I can speak for the Hartford Based Insurance companies. Phoenix had an agreement to buy a bank and therefore be TARP eligable. the deal fell through and PNX lost its TARP bid. The Hartford bought a bank and accepted 3.4Billion on Friday.

I am pretty sure the Hartford is not looking to gain deposits through banking.

The panic that was happening when GS went all bank on us was because it was a belief at the time that investment banks would no longer exist. remember goldmans stock got down to $50 A SHARE. it was some crazy stuff

I am glad they are starting to peel back that panic induced film we all got on us.

Goldman is surely the only one ready to make these steps as well. Goldman is truely the best and brightest of the bunch. Trying to beat GS is what killed Lehman and Merrill. the problem was that the risks Goldman made were, well better researched and turned out to be "less risky"

but thats what you get when you are only recruiting the top 20 university graduates in the world each year.

[monsoon]

.... Goldman is truely the best and brightest of the bunch. Trying to beat GS is what killed Lehman and Merrill. the problem was that the risks Goldman made were, well better researched and turned out to be "less risky"....

Would this best and brightest include former Goldman Sachs' executive Robert Steel who led Wachovia into complete self destruction?

[Commoner]

Would this best and brightest include former Goldman Sachs' executive Robert Steel who led Wachovia into complete self destruction?

Robert Steel led WB into self-destruction ... by suggesting/vetting/negotiating/pricing/managing the acquisition of Golden West? By not paying a premium for Morgan Stanley before they converted to a BHC?

Does one person change the entire composition of Goldman's enormous and un(credibly)disputed talent pool?

But on TVOR's comment - I agree that the (apparent, though I don't believe permanent) end of that "crazy stuff" has to be motivating GS to get back to the higher leverage ratios that a non-BHC can maintain to support its prop trading areas that were being suppressed by BHC restrictions. I just hope (for downtown vacancy rates, availability of jobs and to maintain multiplicity of financial services employers) that Morgan Stanley doesn't abandon the deposit-taking idea, as well.

[dxartist]

Would this best and brightest include former Goldman Sachs' executive Robert Steel who led Wachovia into complete self destruction?

Robert "Duke Lacrosse" Steel was definitely not CEO material. He had no ties here and cared nothing for Charlotte or Wachovia.

Don't forget about GoLdman $achs' other best and brightest alums John Thain (Mr. $1.22 million in bathroom renovations), "King" Henry Paulson, and Jim "Anything I say, do the Opposite" Cramer.

[hueion39]

Not sure if anyone caught this, but a good overview of the BofA/ML merger - and a few great shots of Charlotte! I was personally off put by the level of control the gov't maintains in these matters - even before the bailout.

http://www.pbs.org/wgbh/pages/frontline/br...ngthebank/view/

[CHARtoSF]

I watched the entire story by Frontline and it really helped me understand a lot more about how the banking industry got into this mess and the significance of the banks effect on the economy. I know that there are other factors involved in this recession but the banks sure made an impact.

I didn't know that Obama told all the top bank leaders in there face roughly that they had better get there mess together and start running these banks more efficiently. I wish I could have been in that room at the time and heard that conversation!

In my opinion, I think greed had a lot more to do with this than some people realize. Just my opinion.

[ChiefJoJo]

Not sure if anyone caught this, but a good overview of the BofA/ML merger - and a few great shots of Charlotte! I was personally off put by the level of control the gov't maintains in these matters - even before the bailout.

http://www.pbs.org/wgbh/pages/frontline/br...ngthebank/view/

I watched it last night, and I have to say that it seems like Paulson screwed up when he thought the market could absorb the failure of Lehman Brothers. After that, even the free-market-loving Paulson had no other option. That's why I don't get the argument that people do not like the govts meddling in the market... the unregulated free market created this mess, and there was no other reasonable choice once they let Lehman fail and the credit markets froze. Intervene or let the world free fall into a depression.

[monsoon]

.... That's why I don't get the argument that people do not like the govts meddling in the market... the unregulated free market created this mess, and there was no other reasonable choice once they let Lehman fail and the credit markets froze. Intervene or let the world free fall into a depression.

Indeed. I am often surprised at those who make the argument that government has no right to make demands on corporations that are receiving government assistance.

On the other hand. I don't have any problem letting the free market deal with this. IMO, they should have let all of of the bad banks fail without giving them one dime of public money. I don't think the result would have been any worse than this bleeding of a thousand cuts that we are going through now.

In regards to Paulson, since when did the Bush administration do anything right? It will go down as one of the most incompetent administrations to have ever held the White House. Future generations will measure "bad" using Bush as the yard stick. Well... that is until they forget about it and repeat the same mistakes.

[HopHead]

Saw an interesting short article on Yahoo Finance about some Merrill execs that approached BofA about buying back part or all of ML... Of course ML denies this and BofA has no comment. Now this would be an interesting scenario. For one it would take A LOT of pressure off BofA. On the other hand, it would be interesting to see what price and what would this do to the TARP funds BA accepted? My guess the condition of the sale would be based on a set price that includes ML taking ownership of the TARP funds that were needed to support the sale. Don't see this as a likely situation though...

[Commoner]

Saw an interesting short article on Yahoo Finance about some Merrill execs that approached BofA about buying back part or all of ML... Of course ML denies this and BofA has no comment. Now this would be an interesting scenario. For one it would take A LOT of pressure off BofA. On the other hand, it would be interesting to see what price and what would this do to the TARP funds BA accepted? My guess the condition of the sale would be based on a set price that includes ML taking ownership of the TARP funds that were needed to support the sale. Don't see this as a likely situation though...

M&A involving institutions that have outstanding TARP securities is really the next great frontier in corporate law. Nobody really knows how it will work. M&A between non-TARP or between TARP institutions would be easy (see BAC-MER or WB-SouthTrust (from back in the day). A TARP acquiring a non-TARP also has precedent (WFC closed on the WB acquisition after it received its initial TARP investment).

As for the possibility of a MER-like divestiture, three former MER guys met with Lewis two months ago in Charlotte. BAC said "no thanks" (at least they say they did...). Were it to happen, I think it would go something like this:

MER has been absorbed into BAC's balance sheet, from soup to nuts. MER's capital structure has been fully integrated into BAC's capital structure (TARP securuties and all). In order to do anything resembling "selling MER", BAC would do one of three things: (a) asset divestiture of some legacy MER assets (TARP securities remain in BAC capital structure); (b) spin-off of legacy MER assets into a new company partially capitalized by (assumedly) pro rata percentage of TARP securities (resulting in a pro rata reduction in BAC-issued TARP securities); or © a step-down joint venture between BAC and MER (similar to Citi's JV with Morgan Stanley vis a vis Smith Barney) whereby BAC and "New MER" investors form a JV consisting of the legacy MER assets at issue with an option for the New MER investors to buy BAC out of its portion of the JV after some number of years (in this scenario, BAC would likely account for the retention of all of the TARP securities into how it prices the New MER investors' share of the JV, but BAC would retain the TARP securities in its capital structure). In short, though, after looking at the Term Sheet for TARP I a few months ago, I don't recall a method by which the securities could be transferred from one issuer to another. All it would call for is an amendment to the purchase agreement (unless we're talking about the administration's "progressive" ideas about contract law ... I kid...). That being said, I don't know that either the acquirer or target would be interested in sitting down with UST to bang out an amendment to their TARP security deal, short of redeeming them. I do think that BAC would be interested in shedding some of the legacy MER lines that they don't care to deal with (like M&A advice and prop trading) that they haven't already chopped (not that I agree with that course).

Hope this isn't too convoluted. If anyone wants anymore color, feel free to PM me if you don't want to ask on the board at-large.

[monsoon]

Saw an interesting short article on Yahoo Finance about some Merrill execs that approached BofA about buying back part or all of ML... Of course ML denies this and BofA has no comment. .....

There is a reason that Yahoo is in dire straits these days.

Even with recent gains, BofA has lost $160B in market cap since October and a lot that loss had to do with the BOD and Lewis's decision to push for this acquisition of ML. If they ever stood up and said now, oh NVM, we are going to sell it back to the ML executives, what little bit of credibility they have left would be completely gone. BofA is also joined at the hip now with the US Congress who, I don't think, would not be very willing to turn over ML to former executives of the company. They could never survive it politically and because of that, they would nip it in the bud.

This idea is a non-starter.

[Charlotte_native]

The Observer today had an article discussing BofA's request for a zoning change in North Charlotte for a large campus. No specifics of what would be there or really much more detail, but a bit of discussion about their choice for expanding outside of uptown. Regardless of the reason or meaning for their presense uptown, this certainly doesn't seem like a move for a bank that is thinking of leaving...

[HopHead]

The Observer today had an article discussing BofA's request for a zoning change in North Charlotte for a large campus. No specifics of what would be there or really much more detail, but a bit of discussion about their choice for expanding outside of uptown. Regardless of the reason or meaning for their presense uptown, this certainly doesn't seem like a move for a bank that is thinking of leaving...

I have a post from June 19th on this in the University City topic. I believe this is part of the "work at home" program for the bank. Also the proximity of proposed light rail station nearby is appealing if workers need to head to the uptown HQ for meetings, etc.

[New Name]

The Observer today had an article discussing BofA's request for a zoning change in North Charlotte for a large campus. No specifics of what would be there or really much more detail, but a bit of discussion about their choice for expanding outside of uptown. Regardless of the reason or meaning for their presense uptown, this certainly doesn't seem like a move for a bank that is thinking of leaving...

This is why I like the name NoDa. Because depending on how you read "North Charlotte" - well, I almost vomited.

[monsoon]

..... Regardless of the reason or meaning for their presense uptown, this certainly doesn't seem like a move for a bank that is thinking of leaving...

I think the point being made above is the HQ would move. As you guys have noted numerous times in regards to GMAC and Morgan Stanley, a HQ move does not mean a full move of operations. However if the building of a new campus means otherwise then the building of a high profile world class skyscraper in NYC also could be a consideration.

I personally don't think there are going to be any serious changes such as this at this bank until the feds finally move in at some point as start to bust the place up because they have to. This hasn't happened yet because the approach to fix the mess caused by these banks so far has been to dump tremendous amounts of money into this institution and hope the problem goes away.

[Charlotte_native]

This is why I like the name NoDa. Because depending on how you read "North Charlotte" - well, I almost vomited.

Awwww, come'on! You mean you wouldn't want to see a massive flat banking campus dropped in the middle of North Davidson!?

[krazeeboi]

So no discussion about the $2.4 billion profit posted by BOA in the 2nd quarter?

[HopHead]

So no discussion about the $2.4 billion profit posted by BOA in the 2nd quarter?

Well, if it was a $2.4 billion loss, this thread would've blown up by now, LOL...

I find it interesting that BofA is actually having to negotiate repaying the TARP funds though. Lewis said today that he didn't think they would be allowed to pay it all at once. They would have to do it installments most likely. I guess that means the gov't doesn't want to miss out on all these interest payments that they are getting. I say if BofA has done everything they are supposed to do, such as raising the necessary capital reserves per the stress test results, then they should be able to pay it back if they have the capital to do so.

[monsoon]

So no discussion about the $2.4 billion profit posted by BOA in the 2nd quarter?

What is there to discuss? The $2.4B profit included two one time gains. They sold their stake in China Construction bank for a profit of $1.9B and they used a mark to market accounting trick related to ML to put another $2.4B on the books. This second item is make believe money.

In other words they really lost $1.9B on their regular operations.

Well, if it was a $2.4 billion loss, this thread would've blown up by now, LOL...

Comments such as this is one of the reasons I don't really post much in this topic now. Doesn't have anything to do with BofA's situation, which still sucks. To address your other point, BofA is simply in no position to pay back anything.

[WestCoastNC]

Sure they are, they just use the extra capital reserves the government made them build up as part of the stress tests to pay them back. Simple as that. As long as taxpayers get a reasonable return for their stock warrants (*cough*goldman*sachs*cough*) I think we can call this a win for all parties involved.

[swh1972]

I would encourage anyone who wants to look into the nuts and bolts of the Second Quarter earnings for BAC to read the press release. As Monsoon noted, the earnings are impacted by a number of large one-time adjustments - some to the positive and some to the negative.

[jednc]

WBTV just reported that 3 BoA board members have resigned this week. They implied this could have something to do with the government forcing them out.

[atlrvr]

In good for Charlotte news, 2 of the directors were legacy Fleet.

[jednc]

In good for Charlotte news, 2 of the directors were legacy Fleet.

Nice...that is good for Charlotte. When I heard it, it was breaking news with no details. I haven't gone back to the story to see what's really going on.

[JayGee]

They shuffled around management and came up with five possible successors to Ken Lewis.

I don't know the background of these five or their ties to Charlotte.

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