Bank of America - Merrill Lynch Merger

[Norm2]

On one hand I do not like the government forcing deals like this. On the other hand what is supposed to happen to people's money if a huge institution fails? Are people just supposed to lose large amounts of their money in addition to what was lost in the stock market because of a failing business? I am glad that I am not in the role of government because I honestly do not know what I would do in this scenario.

[monsoon]

The question being asked is if the government forced BofA to purchase ML in the first place. The answer to that is NO.

The government stepped in AFTER BofA had made the decision to buy it, AFTER they had convinced the stockholders to vote for it, AFTER Lewis said he would do this deal without ANY government money and only AFTER they decided it was too risky to do the same deal with Lehman Bros. Lewis clearly got another case of Empire Buildingitis, such as what he had with Country Wide, and made the rash decision to purchase ML at a premium price. Amazingly just a few months before this, when his own attempts to get into investment banking has crashed and burned, he said this was a bad business to be in.

If BofA had left ML alone, then the government could have liquidated it just as it did with Lehman back in Sept/Oct and BofA today would be in much better shape.

[Commoner]

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.

As I understand it, Citigroup's "split" into Citicorp and Citi Holdings is only a management change. The same crap that will be owned by Citi Holdings (Primerica, Citi Financial, etc.) will still be owned by Citigroup and, in turn, by anyone who owns shares of "the big C." Citicorp will look like Citicorp did in the late-1990s and early-2000s (minus Travelers). To say that "Citibank" (I assume you're referring to Citicorp, as opposed to Citi Holdings) is "mostly retail banking" is a little off. Citicorp will remain a formidable investment bank - just with a diminished proprietary trading portfolio. Please correct me if I'm wrong.

Assuming Citi's "split" is still a separation of Citigroup's holdings into Citicorp and Citi Holdings (which will necessitate the hiring of more managers), I don't know how Citi's split would make Wachovians and Charlotte any better off than if the same old bloated C bought Wachovia's retail bank.

[Commoner]

The question being asked is if the government forced BofA to purchase ML in the first place. The answer to that is NO.

The government stepped in AFTER BofA had made the decision to buy it, AFTER they had convinced the stockholders to vote for it, AFTER Lewis said he would do this deal without ANY government money and only AFTER they decided it was too risky to do the same deal with Lehman Bros. Lewis clearly got another case of Empire Buildingitis, such as what he had with Country Wide, and made the rash decision to purchase ML at a premium price. Amazingly just a few months before this, when his own attempts to get into investment banking has crashed and burned, he said this was a bad business to be in.

If BofA had left ML alone, then the government could have liquidated it just as it did with Lehman back in Sept/Oct and BofA today would be in much better shape.

The government implicitly promised a package similar to the one that was announced on Friday (or Thursday?) BEFORE the deal closed, when BAC notified Treasury that it intended to walk away. If the government promises substantial assistance to make an acquisition and guarantees that it will absorb 80-90% of any contingent losses associated with an acquisition that, upon recovery, will position your company to deliver value on a scale better than any other competitor, it's pretty hard to walk away.

I think the dilution to common SHs created by the first tranche of government investment makes this second tranche awfully hard to swallow -- and should have given Lewis more pause than it did (or dissuaded him from closing the ML deal for the value he paid) -- but this isn't nearly as simple as ego or idiocy.

[monsoon]

^No argument there, but that wasn't the question that was asked. If you are going to respond to all of my posts in this topic for some reason, you might want to read them in context. When BofA found out how bad things were at ML, i.e. the lack of due diligence that you said they did do, they went running to the government for more bailout money.

It's pretty clear what happened. Lewis made a bad play by going after Merrill Lynch. It bombed. He cries to the government to help. Simple as that.

[Commoner]

^No argument there, but that wasn't the question that was asked. If you are going to respond to all of my posts in this topic for some reason, you might want to read them in context. When BofA found out how bad things were at ML, i.e. the lack of due diligence that you said they did do, they went running to the government for more bailout money.

It's pretty clear what happened. Lewis made a bad play by going after Merrill Lynch. It bombed. He cries to the government to help. Simple as that.

So, informing the Treasury that you're invoking the MAC clause and no longer plan to close on the ML purchase = crying to the government for more help???

I reply to "every post" because I think oversimplification, obfuscation, misinformation (or whatever it is) doesn't help people's understanding of why companies and the government are doing what they're doing. I just think there's a plethora of that on this site.

[monsoon]

.....

I reply to "every post" because I think oversimplification, obfuscation, misinformation (or whatever it is) doesn't help people's understanding of why companies and the government are doing what they're doing. I just think there's a plethora of that on this site.

You said this last week:

As for the statement that BAC acquired MER without Treasury backstops or assistance, BAC agreed to the acquisition without any assurance by Treasury. ....

You said this, this morning:

The government implicitly promised a package similar to the one that was announced on Friday (or Thursday?) BEFORE the deal closed, ....

If this isn't obfuscation, I don't know what is. I would say that before you take on the job of policing everyone here you might want to first make sure your side of the street is clean.

[Norm2]

here is a video on found online which basically talks about the merger deal. it is bashing the deal calling it a shot gun wedding, but then also asks how much pressure was on BoA to actually make the deal go through? I think it is worth a watch.

http://money.cnn.com/video/ft/#/video/fort....011609.fortune

[Commoner]

You said this last week:

You said this, this morning:

If this isn't obfuscation, I don't know what is. I would say that before you take on the job of policing everyone here you might want to first make sure your side of the street is clean.

The first statement (no government assistance) relates to the time when the deal was announced. As you know, there was a MAC clause baked into the agreement.

The second statement (fast forward a few weeks) is after BAC told Treasury it was walking away after significant value eroded from MER's assets.

That's not obfuscation. That's one of the nuances lost on some people.

[monsoon]

Call it what you want, the words speak for themselves. Making accusations that people here are too slow or ignorant to understand you isn't going to do much to get people to pay attention to you.

On the matter of why you post on this site. You said "simplification, obfuscation, misinformation (or whatever it is) doesn't help people's understanding of why companies and the government are doing what they're doing". If your intent is to actually educate people here on Bank of America or whatever the topic might be. Then do it. However I have yet to notice that you have started any topics, posted anything that wasn't a challenge to someone else's post, or anything that might indicate that you are really interested in doing what you say. If you love where BofA is heading, love Ken Lewis, love George Bush, love the GOP policies, etc. That is OK. Create the post and tell us why. I would enjoy hearing why they have not screwed up big time.

[monsoon]

Senator Barney Frank specifically mentioned how Bank of America has used the bailout money as an example of how the Bush administration did not provide any oversight on how this money was to be used. One of the examples cited was that after BofA got the bailout money, they turned around and spent $7B to buy a stake in a bank in communist China. Whether or not that made any kind of financial sense is irrelevant as it is bringing down the ire of congress and the public against this bank. Is Lewis so clueless and insulated from the real world that he doesn't realize the anger, from the general public, this kind of thing is generating in these kinds of times?

I don't hold Frank in high regard either as he let this stuff happen by caving in to Bush in the first place. They say that it will be different now, but somehow I don't think so.

[nowensone]

I must be missing something - 1.) BoA was forced to take the "baliout" originally, which gave the government some value and control in the company, so does not really equal bailout in my mind, but "investment", and 2.) they bought into another company to shore up their own value holdings, kind of like investing your 401K in several funds as opposed to gambling on one (rudimentary explanation but I hope you get the point). So how does this anger investors? I think it was a smart move, and can't really think of any evidence to the contrary.

[monsoon]

Well....... To answer your question. BofA got $25B from the federal government. Some say they were forced, but I noticed there were not many complaints from the bank either. Regardless they need more now so the money was needed then. I digress.

Back to the answer.......So BofA gets $25B from the federal government. The Bush Administration's stated goal is this: "This troubled asset purchase program (the bailout) on its own is the single most effective thing we can do to help homeowners, the American people and stimulate our economy." This was what was said to Congress who had to vote on the plan. This bailout plan for Wall Street and Bankers is wildly unpopular but nevertheless congress passes it as they cave to the fear of being responsible for the next depression.

Now, BofA, a recipient of this money that is supposed to help homeowners, the American people and which will stimulate the American economy, turns around and invests $7B of this money in the Chinese economy. Call me crazy, but from a political point of view this was a very dumb move at such a time and especially now that the bank is back at the federal pig trough asking for more tax dollars.

[Commoner]

Call it what you want, the words speak for themselves. Making accusations that people here are too slow or ignorant to understand you isn't going to do much to get people to pay attention to you.

On the matter of why you post on this site. You said "simplification, obfuscation, misinformation (or whatever it is) doesn't help people's understanding of why companies and the government are doing what they're doing". If your intent is to actually educate people here on Bank of America or whatever the topic might be. Then do it. However I have yet to notice that you have started any topics, posted anything that wasn't a challenge to someone else's post, or anything that might indicate that you are really interested in doing what you say. If you love where BofA is heading, love Ken Lewis, love George Bush, love the GOP policies, etc. That is OK. Create the post and tell us why. I would enjoy hearing why they have not screwed up big time.

Why would I start a separate BAC topic? Everything is getting banged out in this thread. To me, that seems like a perfectly functioning thread. As for things I've posted, did you see the explanation of the MAC trigger and BAC's interaction with Treasury? Those points were omitted from (mostly your) posts discussing the second infusion. Just because someone doesn't like what I'm saying doesn't mean it doesn't have a factual basis (which is what this discussion really needs at times).

Finally, the creation of an umbrella post defending GWB's policies (even by me) is absurd. I've been critical of administration policies in other posts. I've also voiced criticism of BAC in this thread. I've even attempted to use humor to illustrate the dichotomy between money-center bankers and taxpayers; unfortunately, my method was a genre not permitted by mods ("Frat Boy Humor"). Why would I post in this thread, at the level of detail I do, if I wasn't "really interested" in it?

Hopefully we can get back to the topic. We might be in for some radical new steps to stabilize these banks. Temporary receivership started gaining a lot of traction in the final days of the outgoing administration. A federal "bad bank" has seemed attractive to the incoming administration (whether it involves receivership or not).

[Commoner]

Now, BofA, a recipient of this money that is supposed to help homeowners, the American people and which will stimulate the American economy, turns around and invests $7B of this money in the Chinese economy. Call me crazy, but from a political point of view this was a very dumb move at such a time and especially now that the bank is back at the federal pig trough asking for more tax dollars.

Wait - did BAC make a new investment in CCB? I know they sold a lot of shares in the last month, as have a lot of other banks needing to monetize investments. Thanks in advance.

[monsoon]

What is going on with Bank of America Stock? Down below $6 this morning.

http://finance.google.com/finance?q=NYSE:BAC

[peaceloveunderstanding]

Maybe people are afraid of potential nationalization?

[Commoner]

Maybe people are afraid of potential nationalization?

Regional bank earnings have been disappointing but I have to agree that any possibility of getting wiped out by federal receivership makes this sink.

[monsoon]

In terms of capitalization Bank of America was ranked as the 10th largest company in the world on the FT Global 500 at the end of 2007. As of this morning it is 304th or 305th. Somewhere around the size of Woolworth Dept. store in Australia. It's an astonishing fall. I can't immediately think of a company that has fallen so far so fast.

[peaceloveunderstanding]

In terms of capitalization Bank of America was ranked as the 10th largest company in the world on the FT Global 500 at the end of 2007. As of this morning it is 304th or 305th. Somewhere around the size of Woolworth Dept. store in Australia. It's an astonishing fall. I can't immediately think of a company that has fallen so far so fast.

Citigroup?

[monsoon]

Bank of America's stock fell an eye watering 30% today. At close it is just above $5/share though it has gone up a bit in after hours trading. The bank is now worth less than what it paid for Merrill Lynch back in September. It's a blistering fall in value.

On Oct 3rd Bush signed the bailout into law and subsequently Bank of America received $45B in bailout money. During the same period BofA's stock has dropped from $38.13 at the beginning of October to $5.10 today. This is a loss of $166B.

[Norm2]

A lot of banks stocks fell sharply today.

[A2]

In terms of capitalization Bank of America was ranked as the 10th largest company in the world on the FT Global 500 at the end of 2007. As of this morning it is 304th or 305th. Somewhere around the size of Woolworth Dept. store in Australia. It's an astonishing fall. I can't immediately think of a company that has fallen so far so fast.

Enron...

BofA shares are not worth the paper they are printed on. See ya at 2 bucks soon. Sorry guys, but I call it like I see em'. Quite frankly it is almost a good short. If one wanted to go long BofA (which is suicidal), you might want some of what Uncle Sam owns and that would be the preferred shares. Otherwise this is just a sinking ship getting ready to be a quasi-ran Gov't Institution (ie Nationalized). It is truly a sad state of affairs. Even as bearish as I have been over the last two years, I would have never predicted the shear speed in which BofA is falling from Grace. It is truly sureal.

(Geez, I can't wait to see how the Senate Banking Committee does with the place. My ol' pal B. Frank sure looks like the definition of a banking CEO....lol! )

PS----Over the last nine years the best asset class out there is one:

G-O-L-D.

Even with the markets falling their worst in generations, Gold actually posted gains for 08', making it the ninth year in a row, with annulized returns of over 16%. For the last six of those, I have been ridiculed and practically tarred and feathered for mentioning the Barbaric relic in the Industry in which I work. But in the end Gold is no one elses liability, unlike all the fiat currency that is floating around choking the very essence of a healthy monetary system. As for the Financials (including Wells Fargo, don't bet the farm that they will make it out of this for many years, if at all). As for the market the number ALL must now watch is 741 on the S&P. If broken WE WILL SEE 500-600 on the S&P, which would equate to another brutal sell off.

You were warned...(Get Liquid, Get out of Debt, and Pray that our Country can survive what is looking at us head on)

FWIW, I am currently long the market with 30% of my holdings, praying for an ever elusive Obama Bounce, but we will see.

Got Gold????

[Commoner]

Nationalization is coming up more and more.

Here's a good blog entry on the Financial Times website that contains one of a half dozen nationalization scenarios that I've read over the past few days. This one obviously relates to UK institutions, but it's not a stretch to strike "High Street banks" and substitute BAC, C, JPM, WFC, etc. It's sort of a controlled insolvency, followed by recapitalization and auction.

http://blogs.ft.com/maverecon/2009/01/can-...risis/#more-419.

[tozmervo]

Bank of America's stock fell an eye watering 30% today.

Just, you know, thought it would be fair to point out that it was up 31% today. Yay volatility!