Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Three Troubling Questions About Bank of America Corp (BAC)’s Epic Acquisition of Merrill Lynch

Page 1 of 3

Bank of America Corp (NYSE:BAC) and Merrill Lynch hammered out one of the biggest deals in Wall Street history in less than 36 hours during the weekend of September 13th and 14th in 2008. Five years later, troubling questions remain about the notorious merger.

With Lehman Brothers on the verge of bankruptcy, executives for both Bank of America Corp (NYSE:BAC) and Merrill Lynch knew they needed to act quickly. It was generally understood that Merrill Lynch would be the next financial institution to fall, so there was a real desire to get a deal done before markets opened on Monday, September 15.

Looking back, the acquisition has been a mixed bag for Bank of America Corp (NYSE:BAC). On one hand, Merrill Lynch has been extremely profitable, earning six times the profits of the total bank since 2009, according to The Wall Street Journal. On the other hand, the deal resulted in Bank of America having to settle for $2.43 billion a shareholder lawsuit that alleged the bank had failed to provide sufficient disclosures to investors.

While Bank of America Corp (NYSE:BAC) understandably wants to put all of the allegations and unpleasantness behind it, there are still a few remaining questions relating to the deal for investors and taxpayers to consider. Here are three of them.

1. Why did Bank of America pay so much for Merrill Lynch?

Bank of America Corp (NYSE:BAC) agreed to pay $29 per share for Merrill Lynch, which was a 70% premium to what Merrill’s stock closed at on the previous Friday. The total price was $50 billion (since it was an all-stock deal, the ultimate price actually turned out to be around $21 billion).

When Merrill’s co-president Greg Fleming initially planned on asking for $30 per share, he was advised by a colleague to prepare for a counteroffer of just $3 per share. Everyone on Wall Street knew Merrill Lynch would be hit hard after a Lehman bankruptcy, so the thought of getting a premium on its current share price seemed unrealistic to say the least.

When the final details of the deal became known, JPMorgan Chase & Co. (NYSE:JPM)‘s CEO Jamie Dimon said, “Who pulled that ****** rabbit out of the hat?” More recently, Warren Buffett has asked why Bank of America would, “pay X for Merrill Sunday when you could have had it for pennies on Monday?”

It’s even more curious to consider that Bank of America’s CFO Joe Price and investment bank head Brian Moynihan, as reported in the book Crash of the Titans, didn’t even ask about Merrill’s fourth-quarter forecast when they were going over its financials on Saturday, September 13. Bank of America apparently really wanted Merrill Lynch, regardless of the cost.

2. Why didn’t Bank of America fully disclose Merrill Lynch’s losses to shareholders?

Bank of America and Merrill Lynch announced their deal on Monday, September 15, but Bank of America’s shareholders didn’t approve it until December 5. According to a lawsuit filed by the state of New York, Bank of America’s management team, led by CEO Ken Lewis, failed to disclose to investors that Merrill Lynch had incurred losses of more than $16 billion, and kept shareholders “in the dark about fundamental changes at Merrill that were obviously important to their voting decision.”

Page 1 of 3

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!