Bank of America - Merrill Lynch Merger

[monsoon]

The astonishing drop in BofA's stock price over the last month means it has a market cap substantially less than that of Wells. Even more interesting BofA is worth less than 1/2 what JPM is worth which is now the largest bank in the USA in terms of capitalization.

[Commoner]

The astonishing drop in BofA's stock price over the last month means it has a market cap substantially less than that of Wells. Even more interesting BofA is worth less than 1/2 what JPM is worth which is now the largest bank in the USA in terms of capitalization.

Don't worry - there's ample evidence suggesting that WFC and JPM are next.

[Spartan]

The pundits on CNBC are expressing a lot of frustration at BofA. They are suggesting that it might have been a better idea to let all the ones in trouble just fail, then transfer the assets to banks that have acted responsibly.

A lot of people said that. Not just pundits.

[monsoon]

A lot of people said that. Not just pundits.

I've said that. However keep in mind this is a show where the anchors are on the floor of the NYSE and who where dumbfounded and expressed dismay the first time the congress voted down the bailout. The point is that for this show to say that, which is about as pro-business, pro-Wall Street as they come, means almost everyone, except maybe the executives at the banks, now thinks bailing out these crappy institutions is a bad bad idea. It doesn't do anything for the economy and they have become like leeches sucking blood from their victim.

Bank of America is now going to receive the largest amount of social welfare of any institution in the United States except for Citibank. Merrill obviously was not a good deal for BofA, and Lewis's claims they did their due diligence was bogus. I wonder how many are going to keep parroting whatever he says. Merrill has turned out to be another Countrywide and Lewis should be sent to the same place as his former cross street rival, Ken Thompson. Both CEOs failed their customers, their employees, their investors, and the banking industry.

[HopHead]

Surprised this wasn't posted yet, but BofA posted a net loss of almost $2.4 billion for Q4. This does NOT include the ML acquisition. I'm thinking that Q1 of this year might be worse. Lewis should've never bought these guys...

[sharkdawg]

BofA is struggling just as much as any other financial institution. They certainly didn't help their short term cause by buying up Countrywide and Merril and trying to do it without government backed assurance. Only time will tell if it was a smart move. I have to say that Merril was a smart acquisition solely based on the fact that lots of clients with large assets come along with Merril, but even more interesting to me is that Merril will keep it's name/brand despite being owned by BofA.

Will BofA break them off in the long term?

[atlrvr]

They now have government backed assurance on Merrill bad assets that have been circled. They (BofA) will assume the first $10B in losses, and the fed will cover 90% of the remaining losses.

[Commoner]

BofA is struggling just as much as any other financial institution. They certainly didn't help their short term cause by buying up Countrywide and Merril and trying to do it without government backed assurance. Only time will tell if it was a smart move. I have to say that Merril was a smart acquisition solely based on the fact that lots of clients with large assets come along with Merril, but even more interesting to me is that Merril will keep it's name/brand despite being owned by BofA.

Will BofA break them off in the long term?

This thread is the only place where Countrywide is mentioned alongside MER as the biggest contributions to BAC's quarterly loss. I haven't read anything about Countrywide's impact on 4Q results. Was it broken-out (like MER's $15b)?

As for the statement that BAC acquired MER without Treasury backstops or assistance, BAC agreed to the acquisition without any assurance by Treasury. Built into the merger agreement, however, was a "material adverse change" out that, in Lewis' opinion (I don't know about his attorneys' opinions) would have allowed BAC to walk away. (MACs like the one in the BAC-MER agreement are typical and this one wasn't off-market, to my knowledge.) I hear that Lewis wanted to walk away and told Treasury (in December) that BAC would indeed walk, unless Treasury agreed to provide assistance down the road.

Therefore, I don't believe this situation is easily described as a failure of due diligence. Anybody who has ever conducted DD knows of nuances involved -- especially in evaluating financial assets for which no functioning market currently exists. The implicit assurance provided by Treasury before closing (at a time when BAC was prepared to walk) adds a dimension to the whole thing that doesn't exactly allow for the convenient explanations of this result as being BAC's DD failures, Lewis' hubris or anything else.

[monsoon]

On September 15, during the announcement call, Lewis was asked about the due diligence performed on Merrill Lynch given that he negotiated the deal from start to finish in 48 hours. Lewis's had his CFO Joe Price respond who did with lavish promises that BofA did it's homework.

We have had a tremendous amount of historical knowledge, both as a competitor with Merrill Lynch, but also have reviewed and analyzed the company over the years. As Ken referenced, we did have an adviser several among them, JC Flowers with pretty extensive knowledge of the company. And while none of us like the market turmoil we have been through in the last year, it has caused us all to be much more attuned to the quality of particular name credits and/or other asset classes, so it

[49er]

what I never understood was how they could pay such a premium price ($29/share?) for a company apparently on the brink of failure. Were they really in competition for ML? Was Citi going to scoop them up? JP Morgan has either been more sleazy or more competent in their takeovers depending on how you view the whole situation. They picked up Bear and Wamu for pennies on the dollar. I also see that Lewis says the feds wouldn't let them back down on the deal.

It's also interesting to see that Wells is now at $17/share or so as I write this. Wachovia has already begun to poison what was seen as such a strong company.

[HopHead]

what I never understood was how they could pay such a premium price ($29/share?) for a company apparently on the brink of failure. Were they really in competition for ML?

Overpaying for a company like that sounds like Ken Thompson buying Golden West.

[Commoner]

what I never understood was how they could pay such a premium price ($29/share?) for a company apparently on the brink of failure. Were they really in competition for ML? Was Citi going to scoop them up? JP Morgan has either been more sleazy or more competent in their takeovers depending on how you view the whole situation. They picked up Bear and Wamu for pennies on the dollar. I also see that Lewis says the feds wouldn't let them back down on the deal.

It's also interesting to see that Wells is now at $17/share or so as I write this. Wachovia has already begun to poison what was seen as such a strong company.

HSBC was making a run at MER at the same time. Neither C nor JPM showed interest.

JPM has been more up-front about its need for government backstops, guarantees and other assistance in making its acquisitions of BSC and WM. It has never pretended that it was willing to scoop up failing institutions that presented systemic risk, out of benevolence or for profit. It bought BSC with explicit government assistance and purchased WM from OTS receivership.

As for WFC, I'm sure Wachovia's assets are impacting the stock price, but the acquisition of WB's notiriously putrid assets has been priced into WFC since well before consummation. WFC is in for (has been in for) significant degredation in value because of its exposure to the real estate market all over the country, but especially in AZ and CA. Further, according to Meredith Whitney (the Oppenheimer research analyst who was most critical of WM and WB for the last year) has consistently placed WFC in the same category (along with WB and WM) as institutions that have (a) dramatically underestimated its anticipated defaults in the real estate market and (b) has therefore set aside dangerously low loan loss reserves.

[monsoon]

BofA stock is being absolutely hammered. They are now about a $30B company. It's an astonishing fall for a company that was, not too long ago, in the Global 10. I wonder if they will have to start going down the path of Citibank in looking at divestment.

[Norm2]

It is still too early to tell. I heard on the radio that this is Bank of America's first quarterly loss in 17 years. I would not consider the bank going the way that Citibank currently is unless they report more quarterly losses in the future. Until then, I wold not speculate. By the way, I do feel that with all of the negative press that us posters need to start being more lighthearted. We need to try to look at the best and most positive outcome with all these changes. All of these negative posts, especially from certain people on these forums, are getting rather redundant. I tend to skip reading some posts that are constantly overly negative ALL the time. Bank of America will most likely get through this recession. It might be a changed company, maybe even a drastically changed company possibly, but it will get through.

[monsoon]

Maybe I am missing something but I am not sure how to put a positive spin on what Lewis's decisions have done to this bank in the last 6 months. We are talking about

• The loss of 45,000 jobs.
  
• The loss of $150B in shareholder value since this decision was made. BofA is now worth what it was in 1988 and this is unadjusted for inflation. The dividend on this stock is now 1 cent. A devastating blow to people who relied on that income. Banks are supposed to be a safe investment.
  
• The US taxpayer is on the hook to provide this bank unprecedented amounts of social welfare that may be in the range of $100B+ when it is done. This is a staggering amount of money stolen from the future when to put that in perspective, the entire 2030 transit plan in Charlotte is slated to cost $4B.
  

This topic was presented to discuss the ramifications of BofA's take over of Merrill Lynch and what it would mean for Charlotte. I think we can easily say, Nothing Good.

[Norm2]

At least the bank is not being liquidated.

[troyboytn]

THERE IS NO POSITIVE SPIN! I remember back a few months ago in an interview with Ken Lewis (by Leslie Stahl, if im not mistaken)....Ken said that B of A didnt need to take part in the bailout and had "beaten Wall Street". Dont think so Kenny Boy...you and Hughie and your bank are no better! Just my 2 cents worth!

[carolina_fan]

Positive Spin: when the economy and financial sector rebound, acquisitions like this could actually provide great value. Don't know when that will happen though.

[monsoon]

I find it funny the local Charlotte "experts", the media here loves to cite without question, are back peddling big time in the fact they got it completely wrong about Bank of America and for that matter Citibank.

Citibank is being applauded this week for going after this problem the right way. That is they are making themselves smaller by splitting up, ousting some of their board of directors and setting themselves up so they are able to survive as a real bank and not a supermarket. In comparison Lewis took a bank that was already too big and tried to make it bigger by buying two failing firms. The amazing thing about that, is that he bought Merrill Lynch after the financial meltdown started and did it, apparently, without having any idea what he was getting into. If they did know, then there are some serious ethical questions on asking the shareholders to approve this deal as they are now going to pay a heavy price for it. The stock is worth less than what it was 2 decades ago and the dividend being cut to 0.01 is going to hurt.

Like Wachovia, what is happening to Bank of America now didn't have to happen. Now Lewis can't do anything but beg the federal government for money. Without it, the bank is history. Ironically, and back to Wachovia, if Wachovia had gone with Citibank I predict that Charlotte would have fared much better than it will under wells given where Citi is today. I don't have any reason not to believe that Citi might not have just created its new smaller self, which is mostly retail banking, HQ'd right here in Charlotte. After all they were buying that experience from Wachovia unlike Wells who is buying branches and they were planning to make Charlotte the HQ for it's retail bank anyway. It's certainly more plausible than the dreams that Charlottte leaders are having over GMAC and Morgan Stanley. And were are those expert on that? They have been pretty quiet and hiding under rocks.

I wonder now how long Lewis will continue to be allowed to run this ship.

[HopHead]

I won't defend what BofA did. As it turns out they are paying (or we are paying) for this ML mishap. However, I don't think Citi is being applauded for splitting up their "super market" bank. They pretty much have no choice if they want to survive. Given that their stock is still tanking despite this split, it's pretty apparent that investors still don't have much confidence in this company. Pandit could very much be on his way out as well. Back to BofA... whatever happens with Lewis, hopefully no one from ML takes the helm b/c they are surely doomed.

[The Voice of Reason]

THERE IS NO POSITIVE SPIN! I remember back a few months ago in an interview with Ken Lewis (by Leslie Stahl, if im not mistaken)....Ken said that B of A didnt need to take part in the bailout and had "beaten Wall Street". Dont think so Kenny Boy...you and Hughie and your bank are no better! Just my 2 cents worth!

no positive spin?!?!?!?

you guys are f-ing lucky to still have BOA in existance thanks to the taxpayer.

Lewis who is an arrogant ding bat, almost cost Charlotte its biggest jewel, and in all honestly did, but was saved by the govt.

I am not from Charlotte, but If I were I would be thanking my lucky stars right now. BOA is going to make it at any cost to the American people. The city of Charlotte benefits from this bailout more than I think anywhere. Wachovia was lost, but it seems in a way that will still benefit Charlotte much more than what could have happened. and you still have BB&T

The entire financial crisis is redistributing money and power across out country and some communities are suffering for it(Cleveland, New York) while others are benefiting massively(Pittsburgh, Charlotte, San Francisco). Mind you some communities should suffer for the mistakes of their corporate leaders, but thats not what I am saying. And of course New York is benefiting from the bailout more than any place, but the city is still losing more than most communities in terms of effects of the problems(that it caused)

I do not begrudge this turn of events or any cities success, but for the two rediculous moves that Lewis made, the city of Charlotte will not suffer for them. When this is all said and done, you will still have the HQ of the largest bank in the land. Add to that the largest mortgage broker in the land, and now one of the largest international investment banks in the land. And taxpayers like me from Hartford paid for it. All we get out of the deal is the loss of 800 or so ML jobs. If Hartfords Aetna were to go out and buy a mid sized bank like BB&T then an investment firm like ML and put their financials at risk, Hartford could lose its largest employer. But if the goverment was willing to finance this by giving them 100Billion, I would be all for it. Lewis made some absolute blunders, but he did so knowing the govt had his back. especially on the ML deal. so like I said, you should be thankful that this is panning out the way it is. Charlotte should not even skip a beat while places like Cleveland are reeling from the loss of their largest bank.

[troyboytn]

no positive spin?!?!?!?

you guys are f-ing lucky to still have BOA in existance thanks to the taxpayer.

Lewis who is an arrogant ding bat, almost cost Charlotte its biggest jewel, and in all honestly did, but was saved by the govt.

I am not from Charlotte, but If I were I would be thanking my lucky stars right now. BOA is going to make it at any cost to the American people. The city of Charlotte benefits from this bailout more than I think anywhere. Wachovia was lost, but it seems in a way that will still benefit Charlotte much more than what could have happened. and you still have BB&T

The entire financial crisis is redistributing money and power across out country and some communities are suffering for it(Cleveland, New York) while others are benefiting massively(Pittsburgh, Charlotte, San Francisco). Mind you some communities should suffer for the mistakes of their corporate leaders, but thats not what I am saying. And of course New York is benefiting from the bailout more than any place, but the city is still losing more than most communities in terms of effects of the problems(that it caused)

I do not begrudge this turn of events or any cities success, but for the two rediculous moves that Lewis made, the city of Charlotte will not suffer for them. When this is all said and done, you will still have the HQ of the largest bank in the land. Add to that the largest mortgage broker in the land, and now one of the largest international investment banks in the land. And taxpayers like me from Hartford paid for it. All we get out of the deal is the loss of 800 or so ML jobs. If Hartfords Aetna were to go out and buy a mid sized bank like BB&T then an investment firm like ML and put their financials at risk, Hartford could lose its largest employer. But if the goverment was willing to finance this by giving them 100Billion, I would be all for it. Lewis made some absolute blunders, but he did so knowing the govt had his back. especially on the ML deal. so like I said, you should be thankful that this is panning out the way it is. Charlotte should not even skip a beat while places like Cleveland are reeling from the loss of their largest bank.

Apparently you took my post way out of context....I agree with YOU 100%. If the time were ever to come, B of A as well as Citi should be allowed to

FAIL just as Wachovia would have. Why should US taxpayers continue to throw money at these arrogant ceos an institutions because of there stupid idiotic decisions. The country would be in no worse shape with these giants failing than we are now. i also agree about the cities you mention. Not only do the banks, executives, and stockholders profit from these bailouts but also the HQ cities. Sorry Charlotte, but you have benefitted for years while the cities that B of A and Wachovia scavenged and plundered have been hurt. Sad to say, I have no problem with Charlotte or her people but what goes around comes around, and its coming on strong.

[Durhamite]

Apparently you took my post way out of context....I agree with YOU 100%. If the time were ever to come, B of A as well as Citi should be allowed to

FAIL just as Wachovia would have. Why should US taxpayers continue to throw money at these arrogant ceos an institutions because of there stupid idiotic decisions. The country would be in no worse shape with these giants failing than we are now. i also agree about the cities you mention. Not only do the banks, executives, and stockholders profit from these bailouts but also the HQ cities. Sorry Charlotte, but you have benefitted for years while the cities that B of A and Wachovia scavenged and plundered have been hurt. Sad to say, I have no problem with Charlotte or her people but what goes around comes around, and its coming on strong.

Don't get sour because Charlotte benefited from strong business leadership that resulted in a banking empire. It happens in business all the time (either you're growing or dissolving). It you've ever worked in sales, you can relate (nobody is your friend...the bottom line is the bottom line). Nothing positive has ever come from wishing ill-will on a city and it's people.

Empires rise and empire falls....the American empire is in trouble but I have my fingers crossed.

[Norm2]

How much influence do you think the government had in BoA buying ML? From my understanding, it wasn't just BoA out looking for a company to gobble up.....all of this, or part of this decision was made by the government because you do not just announce a merger after only one weekend of looking at a company to possibly merge with.

[mad_park]

How much influence do you think the government had in BoA buying ML? From my understanding, it wasn't just BoA out looking for a company to gobble up.....all of this, or part of this decision was made by the government because you do not just announce a merger after only one weekend of looking at a company to possibly merge with.

Read an article today that said that BofA wanted out of the merger in Dec when the #'s for ML ended up being MUCH worse than anticipated. The gov't strong armed them into following thru with the deal with the promise of a bailout....never mind that this bailout would dilute common shareholder value.