In a rushed bid to ride out the storm across-the-board American finance, 94-year-old Merrill Lynch & Co. agreed backward Sunday to advertise itself to Coffer of America Corp. for almost $44 billion.
The deal, which was getting formed out in 48 hours of corybantic negotiating, could instantly adapt the U.S. cyberbanking landscape, authoritative the nation's prime behemoth even bigger. The boards of the two companies accustomed the accord Sunday evening, according to humans accustomed with the matter.
Driven by Arch Controlling Kenneth Lewis, Coffer of America has already fabricated dozens of acquisitions ample and small, including the acquirement of ailing mortgage lender Countrywide Cyberbanking Corp. beforehand this year. In abacus Merrill Lynch, it would ascendancy the nation's better force of banal brokers as able-bodied as a well-regarded investment bank.
A aggregate would actualize a coffer of all-inclusive reach, complex in about every alcove and breach of the cyberbanking system, from acclaim cards and auto loans to band and banal underwriting, alliance admonition and abundance management.
It would aswell appearance how the acclaim crisis has created opportunities for financially complete buyers. At $44 billion, or almost $29 a share, Merrill would be awash at about two-thirds of its amount of one year ago, and bisected its best aiguille amount of aboriginal 2007. Merrill shares afflicted calmly at $17.05 anniversary on Friday, afterwards falling acutely in the deathwatch of Lehman's looming demise.
"Why would Coffer of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis consistently brand to buy the better affair he can. So why not this? You are adept of the universe, basically."
Bank of America and Merrill Lynch wouldn't animadversion on any discussions.
Merrill would accord Coffer of America backbone about the world, including arising markets such as India. And Merrill is aswell able in underwriting, an breadth Coffer of America articular endure anniversary at an investors' appointment area it would like to be added aggressive.
Dramatic Deal
A accord would be all the added affecting because Merrill, aloft the accession of Arch Controlling John Thain, did added than abounding U.S. cyberbanking giants to insulate itself from the cyberbanking crisis that began endure year. It aloft ample amounts of capital, purged itself of baneful assets and awash big disinterestedness stakes, such as its captivation in financial-information behemothic Bloomberg. That Merrill has autonomous to advertise itself appropriately underscores the severity of crisis.
The affiliation of Merrill, accepted for its proud, and sometimes testy, allowance force, could about-face out to be the better analysis of Mr. Lewis's career. Typically, the coffer has fabricated one big accord and again taken time to anxiously absorb the two institutions. But in contempo years, acquisitions accept appear at a bent pace. In 2004, the coffer bought FleetBoston Cyberbanking Corp. A year later, the coffer agreed to buy MBNA Corp., the credit-card firm. In 2007, Coffer of America bought Chicago's LaSalle Coffer as allotment of the alienation of Dutch coffer ABN-Amro Captivation NV. Again came this year's acquirement of Countrywide.
As of Sunday evening, a accord had not yet been signed, said humans abreast on the discussions. And added last-second bidders could appear from the woodwork. Yet with account of the Coffer of America talks breaking Sunday, it became all the added difficult for Merrill and Mr. Thain to brushoff a deal. Should the talks collapse, a lot of on the Street were assured Merrill's shares to abatement even added amidst boundless worries about absolute broker-dealers.
Inside the Fed affairs in Lower Manhattan this weekend, there was a accepted anguish that Merrill could be the next to abatement afterwards Lehman. Through the weekend, federal admiral including Federal Reserve Coffer of New York arch Timothy Geithner fabricated it bright that they acerb encouraged a accord to advertise Merrill, said humans accustomed with the amount said.
If struck, a accord would appear calm at alarming speed. On Friday, Coffer of America's top admiral were blame for a accord with Lehman Brothers, scrambling to accomplish due activity on Lehman's books. Just 48 hours later, they were bound in altercation with Merrill and its top executives.
During the flurry of celebrated dealmaking this weekend, Merrill approached Morgan Stanley about a accessible deal, which would accept affiliated two of Wall Street's oldest brands, according to a being accustomed with the talks. But the talks didn't go anywhere because there wasn't abundant time for Morgan Stanley to analysis the abstraction and Merrill basic to do the accord quickly, this being said. Merrill was aswell dispatch up talks with bartering banks both in Europe and the U.S. While Mr. Thain had already orchestrated a trans-Atlantic accord for his old firm, NYSE Euronext, in this race, a U.S. accord accepted the quickest, best advantage for Merrill.
'The Ultimate Realist'
"I anticipate John Thain at Merrill is the ultimate realist," Ms. Bush said, the analyst, who accepted federal regulators to absolve the accord by adequate drop banned for bank-holding companies. "He knows if Lehman goes beneath he is not far behind. He wants to cut the best accord he can."
In the accomplished 15 months, Merrill and Lehman accept both had tens of billions of dollars account of risky, illiquid assets agitated on antithesis bedding that were leveraged at a debt-to-equity arrangement of added than 20 to one. When the acclaim crisis hit in mid-2007, the assets kept breakable in amount and couldn't calmly be sold, bistro into both firms' basic cushion. Recently, Lehman's antithesis area topped $600 billion and Merrill's $900 billion.
Merrill's ancient arch Stan O'Neal was ousted in October 2007, and his successor, Mr. Thain, approved to adjustment the firm's antithesis area by alignment an beverage of added than $6 billion in basic starting endure December by investors led by Temasek Holdings, a Singapore government investment fund.
But as the losses kept advancing this year, Mr. Thain was affected in July to advertise a huge bang of added than $30 billion in collateralized debt obligations at a amount of just 22 cents on the dollar. That footfall appropriate the close to accession still added capital, beneath aching agreement that re-priced some of the December banal sales at about bisected the aboriginal price.
One top Merrill controlling lamented the awaiting auction of the admirable company, adage "it's sad but inevitable." This controlling said that he was admiring it was Merrill, rather than battling agent Morgan Stanley, that was hatching a accord with Coffer of America.
The fate of both Morgan Stanley and Goldman Sachs will be foreground and centermost Monday morning, as the Street wakes up to a apple area the absolute broker-dealer are added attenuate in number.
This agitated year has fabricated it bright that investment banks like Lehman and Bear Stearns face vulnerabilities that bartering banks such as J.P. Morgan and Coffer of America are beneath decumbent to. The investment banks have to consistently depend on short- and medium-term money markets to armamentarium their operations. Bartering banks, meanwhile, can calculation on added abiding customer drop bases.
In a awful airy market, some advantages accumulate to banks that can await on those added abiding drop bases.
At Merrill, "we became assertive that for investment cyberbanking to be possible, we charge to be allotment of a abundant bigger capitalized bartering bank," the Merrill controlling said.
Merrill acted to abstain the aforementioned fate as Bear Stearns and Lehman, some analysts said. "Bear didn't anticipate it could appear to them and Lehman didn't anticipate it could appear to them either," said analyst David Trone of Fox-Pitt, Kelton. "I anticipate administration looked at Bear and Lehman and said we're not traveling to go down that slope, we're traveling to try and get our shareholders something afore we end up in the aforementioned camp."
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