ptgkc

Bank of America / Merrill: Shotgun Marriage

I don't get it. 2 big reasons.

1 - Didn't they learn about buying distressed assets after the Countrywide fiasco. Their open bid was at $18 a share for about 25% of the company. Months later, the in for a penny, in for pound theory takes over and they have to buy the rest of the company for about $5 a share or lose the original investment to bankruptcy. Bottom line, they didn't know the exposure. NEVER buy anything if you don't understand the balance sheet and risks hidden within.

2 - I understand there is little overlap in the businesses, so BoA has largest consumer deposit in the U.S., picked up the largest U.S. mortgage company earlier this year, and this round out the bank with one of the largest investment banks. However, this one stop shop for all things has been tried and has/is failing. Does CITIGROUP come to mind??? Why would they want to round out their bank after that model?

Only thing that makes sense is the Federal Reserve forced it, after BoA wouldn't be bullied into buying Lehman. All potential buyers wanted a Fed backstop with Lehman and the Fed said no. But that doesn't mean they didn't get some other consessions from the Fed in buying Merrill. Wonder what BoA's value does this week if Merrill has to announce an update of their balance sheet and there are more losses than perviously thought.

The $29 a share buyout price is pegged to current BoA value which is almost $34 a share. BoA 52 week low was $18.44 and if this merger is a drag like Countrywide, then BoA will certainly drop this week. 10% to 20% wouldn't surprise me. $28.50 for BoA wouldn't surprise me.