4 hours ago
NEW YORK (AFP) — Bank of America announced Monday it was buying
Merrill Lynch for 50 billion dollars in stock, scooping up the Wall
Street icon battered by the housing and credit crisis.
While giving a lifeline to a troubled Wall Street giant, the
deal creates the world's largest financial services company,
according to the companies.
The announcement came at the close of a tumultuous weekend that
saw Wall Street rival Lehman Brothers seek bankruptcy protection,
setting off fears of falling dominoes in the global financial
system.
Merrill Lynch was seeking a lifeline with its shares tumbling
some 78 percent over the past year on fears of snowballing losses
from the subprime real estate meltdown and global credit
squeeze.
The deal offers Merrill around 29 dollars a share, compared with
Friday's closing price of 17.05 dollars.
"This is great news because it gives Merrill
shareholders a 12-dollar a share premium and takes out what
would have been the next firm to
fail," said Peter Cohan of Peter Cohan &
Associates.
"I am not sure how Bank of America will make the deal pay off,
but now attention focuses on the next domino to fall."
Merrill Lynch shares held steady with a gain of 0.06 percent at
17.06 dollars on the news despite a rout in global stock markets.
Bank of America shares slid 21 percent to 26.55 dollars.
"We wonder if Bank of America has appropriately priced
Merrill's 80-plus billion dollars of risky asset exposures,
particularly considering its relatively thin capital base," said
Joe Morford at RBC Capital Markets.
Standard & Poor's cut its credit rating for Bank of
America to AA-minus from AA and kept the rating on watch for
further possible downgrades.
The actions "reflect the risks of acquiring Merrill
Lynch in the present turbulent market environment," said Standard
& Poor's credit analyst John Bartko.
"While BofA has a history of successfully integrating bold
acquisitions, the purchase of Merrill carries integration risk,
particularly since it comes during a period of severe market
turmoil. BofA has never integrated an investment bank the size of
Merrill," S&P said.
The agency added that Merrill "will introduce more residential
housing risk to BofA, notably in the form of its sizable holdings
of collateralized debt obligations ... We cannot rule out the
possibility of future writedowns."
Bank of America, which earlier this year bought troubled
mortgage firm Countrywide Financial, said the acquisition of
Merrill creates a financial powerhouse.
"Acquiring one of the premier wealth management, capital markets
and advisory companies is a great opportunity for our
shareholders," Bank of America chairman and chief executive Ken
Lewis said in a statement.
"Together, our companies are more valuable because of the
synergies in our businesses."
The news comes six months after a rescue of Bear Stearns,
another storied Wall Street group that neared collapse until
last-minute deal brokered by US officials gave it to JPMorgan
Chase.
John Thain, chairman and CEO of Merrill Lynch, said he looked
forward to working with Bank of America to create "what will be the
leading financial institution in the world."
Under the terms of the transaction, Bank of America would
exchange 0.8595 of its shares for each Merrill Lynch common
share.
The transaction has been approved by directors of both companies
and is subject to shareholder votes and standard regulatory
approvals. It is expected to be finalized in the first quarter of
2009.
Following the acquisition of Merrill Lynch, Bank of America
would have the largest brokerage in the world with more than 20,000
advisers and 2.5 trillion dollars in client assets.
It will also give the bank approximately 50 percent ownership in
financial firm BlackRock, which has 1.4 trillion dollars in assets
under its management.
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