Not sure I get this one. When Bank of America CEO Ken Lewis bought Countrywide (CFC) earlier this year, he essentially doubled down on a bet he made last year when he invested $2 billion in the mortgage lender at prices double his eventual takeover price. Now, Merrill Lynch (MER).
After last night’s failure of Lehman Brother’s (LEH), I don’t think anyone can argue Merrill Lynch (MER) was not the next domino to fall. That being said, to buy them now, for a premium to it current valuation, smacks of deja vue of Lewis’s initial Countrywide investment.
While Merril is a premium name and we all know Bank of America wanted to expand into Merrill’s domain, one can’t help but wonder about the price being paid. Going into the weekend the future of Lehman was in doubt and patience on the part of Lewis could have saved shareholders billions.
After watching both Bear Sterns and Lehman, options for Merrill were minimal at best for this upcoming week. Even had Lehman got its lifeline, its effect on Merrill would have been minimal as it still would have been the next institution in the cross-hairs.
All in all the deal is a good one for Bank of America from an operational standpoint, it was just done a way too high a price…
Disclosure (“none” means no position):None
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6 replies on “Bank of America / Merrill Lynch…..Why Now?”
Goldman, Morgan Grasp at Bitter Prize
Like you pointed out before, the field is getting smaller.
Einhorn is probably gonna be taken more seriously from now on.
This might be a little too “grassy knoll” – conspiracy theory – but, do you think Paulson gave BAC any incentive to buy Merrill? While tax money wasn’t going to be used to guarantee the purchase – could Paulson have pledged to support BAC’s purchase of Countrywide in any way? With Fannie and Freddie under control – refinancing Countrywide’s exposure could be easier. And, as you pointed out, Merrill was next on the chopping block. Why not nip this one in the butt early and prevent another failure? A little simplistic, but just a thought.
Chris
Chris,
They both deny it. i think this happened because paulson let Leh fail….
merrill was next on the list..
i do think lewis overpaid
they could have waited and got it cheaper but they would gotten a much depleted Merrill in full f ledge crises mode. i think, if you want to do the deal, get it now at 1/3 of what it was is a good bargain.
I hope they can manage the integration of Merrill and countrywide well
Chris – there is talk of private equity loans through 2006-2007, ALT-A, Ninja loans, and consumer credit all combining for a second wave of credit crisis – have we seen all the exposure of these banks ? What is BOA’s real exposure and have they opened themselves up too much.
As a BAC shareholder, this one troubles me and leaves me scratching my head.
Best Wishes,
D4L