BANK OF AMERICA is buying the Wall Street investment banking icon Merrill Lynch for about $US50 billion ($61 billion) in a deal that creates the world's largest financial services company.
Bank of America has agreed to acquire Merrill for $US29 a share, according to sources close to the deal, which is yet to be finalised.
That price is a 70 per cent premium on the brokerage's Friday closing price of $US17.05, but well below what Merrill was worth at its peak in early 2007.
The acquisition capped a frenzied weekend in which top Wall Street leaders and regulators also allowed Lehman Brothers to head towards liquidation and assisted American International Group. Following the acquisition, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $US2.5 trillion in client assets.
Bank of America has the most deposits of any US bank, while Merrill Lynch is the world's largest and most widely recognised brokerage.
Merrill Lynch, founded in 1914, has long been known for its independent spirit on Wall Street, with its army of 16,000 brokers globally nicknamed the "Thundering Herd".
But like many of its Wall Street peers, it has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses, and its stock has been sliding.
Officials from the Government and various banks met over the weekend to discuss what to do about the troubled investment bank Lehman Brothers. When Bank of America baulked at buying Lehman, the Government urged it to buy Merrill instead.
The deal differs from JPMorgan Chase & Co's buyout in March of Bear Stearns in that Bear Stearns was sold at a steep discount and with financial backing from the US Federal Reserve.
While Merrill Lynch is burdened with soured real estate investments, its financial position is stronger than Bear Stearns's was.
Some analysts questioned the deal. "For BA to step in and offer a premium strikes me as being imprudent. BA could get a much better deal if they just sat and waited," a Ladenburg Thalmann analyst, Richard Bove, said.
Bank of America's own finances are far from robust.
As consumer credit deteriorates, the bank has seen its profits decline, and the company is still absorbing the mortgage lender Countrywide Financial, which it acquired in January.
After the Lehman crisis, many market participants believed Merrill Lynch - the first of the major financial services firms to oust its chief executive after the credit markets seized up last year - might have been the next to lose the confidence of its investors.
Merrill will instantly boost Bank of America's investment banking business, something that analysts would welcome.
Associated Press
