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.”