What's the BofA / Merrill Synergy?

 |  Includes: BAC, MER
by: Paul Kedrosky

I have had more than a few people ask me via email why Bank of America (NYSE:BAC) is buying Merrill (MER). After all, Merrill is badly broken, and BofA could almost certainly pick up whatever pieces are worth picking up for even less in the very near future. Arguably, it could get the pieces significantly less just by waiting for market close tomorrow. To that point, it would surprise me zero if tomorrow BofA's shares fall further and faster than Merrill's.

My guesses are two-fold:

  • First, Merrill's CEO John Thain is a pragmatist. I'm guessing that, unlike, Dick Fuld at Lehman, he has been shopping his well-known firm early and at attractive prices, and he has obtained some strong interest, likely overseas or in Canada. Knowing this, BofA CEO Ken Lewis felt he had to move sooner rather than later.
  • Second, BofA's Lewis has a demonstrated fondness for swinging in and buying broken financial brands at the 11th hour. He did it with Countrywide Financial, and he is almost certainly feeling the same way about Merrill. He thinks they're both bargains. The trouble is, the jury is not just out, it's on a year-long fishing trip, with respect to deciding whether he is close to correct.