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Bank of America, Merrill in Merger Talks (Updated)

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The initial report from the Wall Street Journal is skeletal (hat tip reader Randy(:

Bank of America and Merrill Lynch & Co. Inc. are in merger discussions, according to people familiar with the matter.

The talks come amid a Wall Street scramble to sort out a potential liquidation of Lehman Brothers Holdings Inc.

Bank of America had considered buying Lehman, but when those talks failed to result in a deal, BofA turned its attention to Merrill, which is considered a better fit for the bank.

Much remains uncertain and conditions were fluid.

This does lend credence to the view that things at Merrill are as bad as the worrywarts thought.

Update 5:10 PM: Readers Jim B and Saboor pointed to this report at the New York Times’ Dealbook:

Bank of America is in advanced talks to buy Merrill Lynch for at least $38.25 billion in stock, people briefed on the negotiations said on Sunday, as a means to preserve that investment bank while Lehman Brothers looks likely to collapse.

The move suggests a desperate effort at triage on Wall Street, as Bank of America works to shore up the likely next victim of the credit crunch. A deal, valued at between $25 a share to $30 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.

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13 comments

  1. m

    Oh shit, there’s more! From the WSJ:

    American International Group plans to disclose a comprehensive restructuring by early Monday morning that is likely to include the disposal of major assets including its aircraft-leasing business and other holdings. Full story coming shortly.

  2. a

    “This does lend credence to the view that things at Merrill are as bad as the worrywarts thought.”

    I think it’s more realistic than anything. MER is next in sight of the shortsellers. Thain knows this and wants to sell now to get something for the shareholders. A smart move. BofA gets a better IB than Lehman. Also a smart move. BofA is too big to fail; if things turn out badly, with Countrywide and Mer, then they will get bailed out, so the downside is limited.

  3. Anonymous

    I wonder to what extent G.W. and the West Wing’s evangelical fatalism is quashing any notion of a government bailout.

    I can’t wait for Woodward’s/Lowenstein’s book on this.

    Sigh. The country doesn’t need another term of evangelicals but given that the ENTIRE world is cheering for Obama I’m worried. Main Street America loves to hear what the world wants and do the exact opposite.

    happy with my SKF but pissed at the path of our country. Triple sigh.

  4. Yves Smith

    a,

    I don’t disagree. Thain does not have ego in having Merrill survive as an independent entity, as Fuld did, and he is more conservative by temperament (I worked with him briefly early in our respective careers). But conversely, this also says that he thinks the odds of Merrill not making it are high enough that a sale is the best option. It may be that he realizes the that odds of a Roubini-esque run on brokerages is real. I had people months ago, long before Merrill in particular was a focus of concern, asking whether it was safe to keep their accounts there. That says that nervousness about the securities industry is widespread.

  5. mxq

    If MER needs capital, Thain should get the boot. They should’ve just done a 50% equity raise back in July – I have no idea if Temasek wanted it or not, but either way, they’re now at a 50% discount to post-July capital raise levels. Unbelievable.

    Even worse, Thain goes on CNBC and says “as of this exact millisecond, we are well-capitalized.”

    Great…thanks, John. Now, given you are CEO, do you mind telling us how well you are capitalized for, say, tomorrow, or maybe a month from now…you are capable of thinking beyond the current millisecond, aren’t you?

    Maybe not.

  6. S

    http://www.ft.com/cms/s/0/e5f996…? nclick_check=1

    FT article on Fuld arrogance.

    Why did it take MSM until LEH is filing for Chapter 7/11/13 (?) to figure out that he is part of the problem? SHouldn;t it have been obvious after his arrogant comments after the fed opened the window to save LEH.

    Whewre is NY Fed press release saying he is off the board?

    MER has $100 billion per 10Q in deposits. Plus a $10B stake in Blackstone and $5B in bloomberg. $44 billion in level 3 assets and approx $30B in tangible equity. fully diluted shares approx $2B against the 995M used for common calc. If converted for all the preferred out, valuation will not be good for common holders.

  7. Abbott_Of_Iona

    If BoA are doing a deal with Merrill it is clear the Lehman are going into BK.

    Merril were next.

    That's were Hank is going to use the last shot of his bazooka.

    Roubinni(?) is right. The is the meltdown of the secondary banking system.

    Do BoA have ehough capital to bail out Merrill?

    Have the Fed & Treasury both run out of money.

    Japan & China may be closed tomorrow. But they will wake up on Tuesday.

  8. s

    yes agreements inplace for Bloom. Not Black due to credit rating issues. AIG now reported to be moving money from reg subs to the holdco. calling bs on MER/BAC rumor

  9. Matt Dubuque

    Just back from a very large picnic in the California hills with 30 friends. A real nice break.

    Abbott, Hank’s bazooka isn’t very effective in a nuclear war battlespace, with nuclear implosions going off everywhere, 15 megaton Fannie here, 7 megaton Freddie there, 12 megaton Lehman here, 4 megaton Merrill over there, 25 megaton AIG coming right at us.

    We need more than clown with a bazooka who can barely shoot straight. We need Volcker and James Baker, the best Fed/Treasury duo in history, and I’m no Republican.

    As previously stated, there is only so much the Fed can do. We need a global response.

    Matt Dubuque

  10. Been there

    I heard one of the commentators on the Cavuto Business Report state a few minutes ago that it didn’t make sense that BAC would offer $25 to $30 per share for Merrill when Merrill finished below $20 on Friday. He further stated that he thought there was some misrepresentation/ or other problem with the published purchase price.

    How ‘bout this. My understanding is that the purchase is an all stock purchase. BAC sees the purchase as fair in terms of what its own share price might fall to when the falling dominoes reach their front door- if they sit tight and choose to do nothing. Smart play for them(while their stock still has some value) is to grow BAC large enough(by absorbing Merrill) so that the Feds are forced to step in and backstop them. The purchase price offered by BAC says a lot more about what BAC thinks its own ultimate share price may be worth if they were subsequently targeted by the shorts. Ultimately, increasing the likelihood of Fed backing reduces the threat posed by the shorts.

    Wish I were wrong because this argument implies nothing more than pure desperation on BAC’s part.

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