Bank of America - Merrill Lynch Merger

[HopHead]

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

Amazing how quite this thread is when the stock has a positive day. I did see where Ken Lewis bought 200,000 shares of his company's stock today, interestingly enough. Maybe that helped it go up

[Condoze34]

I'll bet Bob Steele wishes he had only bought 200,000 shares of WB at $5 instead of 1,000,000 at $16. Lewis' purchase is meaningless to anyone but him. What is so amazing about this housing bubble is that it came so quickly on the heels of the internet stock bubble. No doubt that amplified access to information and ease of entry (courtesy of the internet) fueled both of these frenzies.

Many of us suffer from "herd mentality" and it is difficult to see it, understand it and to break free of it when caught in it's midst and grasp.

For opportunists, the question will be - what is the next bubble? History tends to repeat itself, it just seems that these cycles have intensified dramatically and now with more frequency.

In Washington right now, they are stoking the embers as hard as they can go. We're laying the foundation for the next round somewhere down the road. I'm not so sure we will see another bubble bursting in 10 years, but in 01 - 02, few would have predicted a much larger bubble bursting than the one we had just been through.

[monsoon]

Indeed it is. Lewis and the BOD bought up a good number of shares today in an effort to inspire confidence they know what they are doing in running a bank. They also said they were laying off 1000 investment bankers this week and another 4000-4700 in the capital markets division are going. (rumored) Also IBM announced that it made over $100B dollars last year and they far exceeded estimates for 4Q, which pushed the entire market up.

[Commoner]

Lewis meeting with Thain at 11:30 to "discuss Thain's future."

Two men enter ... one man leaves (hopefully).

Someone get up there and take notes!

[monsoon]

Thain is out. This is the guy that destroyed ML, but amazingly convinced Lewis to pay ML's shareholders a great deal for his failing company. Now that the building is burning to the ground he gets out. BTW, this is the kind of CEO that people love to hate. While 1000s are being laid off, Thain spent close to $1.2M redecorating his office including such things as King George chairs, $1400 trashcans, and other priceless antiques. I guess BofA owns this stuff now too.

Some more details on his re-decoration using bank money. If this is the kind of thing that you do during cost cutting, I can't comprehend the kind of money they spent during good times. Now you know where the bail out money really is going.

• Designer Fees- $837,698
  
• Rug - $87,784
  
• Pedestal table - $25,713
  
• Credenza from 19th century - $68,179
  
• New curtains - $28,091,
  
• Some guest chairs - $87,784
  
• Waste can - $1,405
  
• George IV chair - $18,468
  

He also bought such things as a 4 legged commode for thousands of dollars and he also paid an additional $30K in incidental expenses that his designer ran up.

[Commoner]

Thain is out. This is the guy that destroyed ML, but amazingly convinced Lewis to pay ML's shareholders a great deal for his failing company. Now that the building is burning to the ground he gets out. BTW, this is the kind of CEO that people love to hate. While 1000s are being laid off, Thain spent close to $900,000 redecorating his office including such things as King George chairs, $1400 trashcans, and other priceless antiques. I guess BofA owns this stuff now too.

The furniture (including the $35k commode) should actually be quite a bit more liquid than a lot of the acquired assets.

It's a shame this happened so late in the integration. The new BOAS was shaped by Thain and Montag, at the expense of legacy BAC employees. Now, in addition to everything else, Lewis has to find someone to run an investment banking unit that isn't his creature.

[monsoon]

It's being suggested this information is coming out now because BofA is looking for a scapegoat for having paid way too much for Merrill and now, and this was amazingly printed in the Observer today, the bank is on the edge of collapse.

[peaceloveunderstanding]

Thain is gone.

http://www.cnbc.com/id/28793170

EDIT:

I didn't see monsoon's post; I only saw the stuff about the desks and chairs.

[HopHead]

Hope that door hits Thain on the way out... This ML buyout gets worse by the day. Wonder how much Lewis wishes he did better homework on these guys?

[gman430]

Enron is rearing its ugly head again. This time with the banks. Hope these idiots are thrown into prison. They deserve it.

[Eastman]

Enron is rearing its ugly head again. This time with the banks. Hope these idiots are thrown into prison. They deserve it.

Considering my firm has now cut 40% of it's staff since November, and after 30 years we may not even be in business come spring, I cannot tell you how pissed I am with what has gone on with all this. I'm sure they will have a nice vacation on some island, laughing how they screwed everyone.

This flu is going to last along time guys................

[ohioaninSC]

Fox Business made mention of Treasury creating a "bad bank" to finally do w/ TARP was supposed to do, but that it would take $4 Trillion...I unfortunately think the creation if someting like that is the only way many of these banks are going to survive, including BoA & Citi. It's a sad state of affairs.

[RiverwoodCLT]

I have never seen a mess as whats going on now. If we get out of this mess in 10 years, I will be surprise. The courts should fill the jails with these crooks.

[monsoon]

Thain's decision to causally spend over a million dollars to decorate an office, a sum that represents 27 years of earnings for the average household in the USA, is adding to the absolute disgust that is building amongst Americans towards these large corporate banks. Lewis, who now seems like a complete idiot for the Merrill deal, was just a few weeks ago praising Thain. This was another nail in BofA's coffin that it did not need and I have to wonder how long it will be until they lower it and start throwing the dirt.

As an example of this, the sharks are already swimming around for the kill as ABC's Nightline did a story that mostly focused on Bank of America and it's treatment of people that are in trouble with their mortgages. I understand the sentiment that these people should have been responsible for not getting into these situations, but lets keep in mind that BofA, and its subsidiaries, instead of telling these people NO, instead encouraged these kinds of loans. So now the Bank has already gotten $45B in direct payouts from the government and the government is on the hook for close to $100B more. With that perspective, that is the bank is taking taxpayer money, have a look at this video that aired this week. Video on Bank of America (The BofA part starts about 1/4 into the show).

The point of this is the bank does not seem to have any clue of the anger that is building towards it because of this sort of thing and it spells disaster for them if they again have to go back to the federal government for even more assistance. My guess is that if the bank does not come up with some very quick changes, and most of them are going to have to be some very severe cuts in it's costs, then we might be seeing it's last days as a growth engine for Charlotte. As a footnote to this, a class action lawsuit has been started by a group of shareholders who claim that Lewis, the BOD and the management of the bank violated a number of SEC rules by failing to disclose Merrill's troubles while they were at the same time urging a vote for this deal.

[monsoon]

Update: Obama in a speech this morning made mention of companies that receive taxpayer assistance that turn around and use the money to renovate bathrooms or offices. Clearly a shot at BofA. Take from that what you like but I think it leads credence to idea that things are going to get a lot tougher on some of the banks now.

[nowensone]

I still believe that the ML purchase was brokered and strong armed by the Fed/Treasury, and that BoA should not bear as much of the brunt of criticism as we are hearing. Lewis may have had a choice, but it was likely only a choice of who to buy, not could he abstain from buying. We have to remember that at the time these mergers/purchases were the Fed's plan for saving the struggling firms and preventing an economic collapse.

Now of course it was marketed as a win-win and value-add for BoA, but how else was Lewis supposed to spin it? That is was not a good idea and they didn't love doing it? That would have simply caused a fall out among the customer base as well as caused their stock to tank immediately. As stated by another poster, mergers/purchases of large firms normally take a long time, measured in years sometimes, to put together. It wasn't Lewis' fault that this was hastily put together, but the unique situation at the time and the Fed trying to prevent collapse of our financial sector.

Thain on the other hand deserves all the criticism he is getting - he knew there was not to be the normal period of discovery, and would seem chose not to divulge the sinking ship that ML has become. I can't really bring myself to blame BoA for this, again, it had little choice in the matter.

As far as the mortgages, the signers of those are ultimately responsible, one could easily argue that the providers were simply acting out the I have a dream philosophy that the US stands for, stated in our constitution (the right to pursue happiness), and embodied in our culture - in this case the owning of a home and membership in the great middle class. This is why our lawmakers have made it easy for mortgage companies and banks to provide the ability for citizen's to get the credit to purchase a home (such as the first time buyers "discount"). Some mortgage lenders are guilty of taking this too far, but I don't place BoA in that category.

[rockhilljames]

BofA is, however, responsible for the Countrywide disaster. They had adequate warning about the subprime market, had seen Wachovia spiraling down due to Golden West, and still moved forward with the purchase, paying a BILLION dollars for a company with toxic debt.

What the hell happened to due diligence?

[Commoner]

Update: Obama in a speech this morning made mention of companies that receive taxpayer assistance that turn around and use the money to renovate bathrooms or offices. Clearly a shot at BofA. Take from that what you like but I think it leads credence to idea that things are going to get a lot tougher on some of the banks now.

To be fair, Thain's bathroom was renovated immediately after he took over at MER, about 10 months ago, about 7 months before it recevied any direct government assistance.

[monsoon]

^Oh I know that, but the actual details don't matter at this point. Nobody pays attention to when the gasoline is purchased when it is thrown onto an already burning fire. It's the ones standing too close that are going to get burnt and clearly you can't get any closer to this mess than Bank of America.

[Commoner]

BofA is, however, responsible for the Countrywide disaster. They had adequate warning about the subprime market, had seen Wachovia spiraling down due to Golden West, and still moved forward with the purchase, paying a BILLION dollars for a company with toxic debt.

What the hell happened to due diligence?

What makes the Countrywide purchase a disaster? Countrywide's impact on BAC's financials has not been nearly as debilitating than MER. Two months after closing, it was being lauded as the last missing piece in BAC's retail franchise. Since then, with the exception of negative PR regarding reluctance to restructure loans, I haven't read anything that expresses concern over Countrywide's impact on BAC's performance. I didn't expect it to work out this well, and I thought BAC was sort of forced into the purchase in order to save their earlier investment ($2B I think), but I'd be interested to read something critical (in a tangible sense).

As for due dili, here are my $0.02 (speculation based on experience)...

Diligence is often only as successful as the assistance you receive from the target, especially on accelerated deals like this one. It's also nominative and objective. It's there or it's not, and the numbers/contracts/contingencies are what they are. It's starts as a snapshot (in this case, taken the weekend of the announcement). The acquirer then relies on the target for notice of any material degredations in quality. (The documents between target and acquirer spell this obligation out with a lot more specificity).

Ideally, when MER begins anticipating substantial, unexpected degredation in the value of proprietary securities, MER would give BAC a heads-up. If you're MER, and you know that the price BAC will pay for you is your only hope of avoiding "$0/share", you obviously want to comply with the terms of the merger agreement with BAC (they will have to make a lot of the same representations and warranties that they made to BAC when the deal was announced, at closing), so they can't sit there while assets deteriorate only to let BAC discover the bomb after the deal is closed. BUT - you don't want to scare BAC off (lest they end up like Lehman), so they wait until the last (legal) opportunity to inform BAC of the anticipated degredation in MER's value.

This is when Lewis gets "purple-faced" and tells Treasury that the deal's off. Two weeks before closing. MER probably complied with the terms of its agreement, but the last-minute bomb dropped on BAC didn't instill any more confidence in Thain on the part of BAC/Lewis. The story continues with the part where Lewis tells Paulson he doesn't want MER and Treasury tells Lewis they'll make it work.

All this is meant to illustrate that it's not like BAC sent a bunch of clowns to perform due dili. Acquirers still rely on disclosures by targets. When you're an acquirer, you hope they come through before the deal documents require them to come through. Usually, if you don't like what you see, you walk away. This, obviously, has been a very unusual M&A environment.

[monsoon]

What makes the Countrywide purchase a disaster? Countrywide's impact on BAC's financials has not been nearly as debilitating than MER. ....

I don't think anyone knows that. BofA has no idea the real worth of the properties that are in question, how many more are going to end up troubled, and even less about the ability and willingness of the people to stay in these loans. I also don't think that Countrywide losses have been fully reflected yet in a BofA statement.

If you compare the two I think Merrill Lynch operated with good intentions to provide value to their customers. Where they failed is in their execution. In comparison Countrywide operated with the came philosophy as that of a loan shark where the intent was to rip off the customer rather than provide value. The fact that Countrywide has been hit with multiple state and city lawsuits is testimate to that. In the long run, and we are talking about millions of families, the damage to BofA's reputation will be much more widespread and will hit much more of their real customer base. BofA is a retail bank and it's reputation is all that it really has to sell in this market.

[Minneapolitan]

Here is Thain's memo to Merrill executives.

It has been an honor to lead this company over the last very difficult year. The decisions that I made were always with the best interests of our shareholders and employees above all. I believe that the decision to sell to Bank of America was the right one for our company and our clients. While the execution has been difficult, I still believe in the strategic rationale of the transaction and I wish you all the best for the future of the combined companies.

I want to address several topics that have been inaccurately reported in the press. The first issue is our year end bonus payments. Our 2008 discretionary bonus pool was 41% lower than 2007. The size of the pool, its composition (cash and stock mix), and the timing of the payments for both the cash and stock were all determined together with Bank of America and approved by our Management Development and Compensation Committee and our Board.

The total bonus pool was also substantially less than the amount allowed under our merger agreement.

The second topic is the losses in the fourth quarter, which were very large and unfortunate. However, they were incurred almost entirely on legacy positions and were due to market movements. We were completely transparent with Bank of America. They learned about these losses when we did. The acting CFO of my businesses was Bank of America

[monsoon]

^Basically Thain is calling Lewis a liar about who is responsible for the bad state of Bank of America. (not counting the re-decoration stuff) Thain has been making the news circuit to tell "his" side of the story.

[palmetto75]

Kenny is gonna have some explaining to do!

[atlrvr]

I say this sort of tongue in cheek, but Thain should have said...."Dear ex-MLer's. Thank me for your 2008 bonuses. Had I not paid you what I did, when I did, BofA would have certainly given you far less. As retribution for my crucifixion, I suggest that you be obstenate througout the merger process and show as little gratitude as possible that you are still employed. Peace out, I'm going skiing in the Alps, and can somone FedEx me that sweet trashcan that was in my office."