Bank of America - Merrill Lynch Merger

[Bynocerus]

As another side to this complicated issue, a lawsuit was filed in NY State Supreme Ct. to stop the sale of ML to BofA. They contend the shareholders should have had a hand in making the decision to sell their company to BofA. If that isn't enough, another NY law firm says it is going to file a lawsuit BofA and ML because the price offered is not high enough. They contend about the defendants, "have clear and material conflicts of interest and are acting to better their own interests at the expense of Merrill public shareholders." It will be interesting to see how many more NY law firms are going to jump on this boat.

Hopefully none: MER had the choice of going bankrupt eventually, ala LEH, or partnering up. Even though BAC's stock price is down 15%-ish from the announcement - bringing ML's value down with it - it beats the hell out of the alternative; namely getting nothing.

This is the definition of "nuisance lawsuit."

Whaah. We were next on the chopping block but instead we got a reprieve and twice as much as we had before. Whaah! It should have been three times.

[RiverwoodCLT]

Where are the people who put us in this mess? They should be going to jail.

[monsoon]

Hopefully none: MER had the choice of going bankrupt eventually, ala LEH, or partnering up. Even though BAC's stock price is down 15%-ish from the announcement - bringing ML's value down with it - it beats the hell out of the alternative; namely getting nothing....

Not according to Ken Lewis the head of BofA. He told CNBC that Merrill Lynch was in good enough shape to have made it through this. His direct quote to Maria Bartiromo about he question concerning the price paid. "BUT MERRILL LYNCH HAS QUITE A BIT OF LIQUIDITY. AND I THINK THEY COULD HAVE SEEN THEIR WAY THROUGH THIS. AND SO YOU WOULD HAVE THE -- THE ISSUE OF THEM GOING ON THEIR SEPARATE WAY." This sounds to me like ML did have a lot of choices.

[Bynocerus]

Not according to Ken Lewis the head of BofA. He told CNBC that Merrill Lynch was in good enough shape to have made it through this. His direct quote to Maria Bartiromo about he question concerning the price paid. "BUT MERRILL LYNCH HAS QUITE A BIT OF LIQUIDITY. AND I THINK THEY COULD HAVE SEEN THEIR WAY THROUGH THIS. AND SO YOU WOULD HAVE THE -- THE ISSUE OF THEM GOING ON THEIR SEPARATE WAY." This sounds to me like ML did have a lot of choices.

That's fantastic. Of course, it entirely ignores the fact that the Feds were saying sell or we're nationalizing you, or that Ken Lewis has a vested interest in: A) demonstrating to his shareholders that MER is worth something, and/or; B) spinning MER back out in a few years when (hopefully) all of this is behind us.

Remember, this is the same man who paid $6B (including cash infusions) for a going-bankrupt Countrywide that he could have gotten for next-to-nothing, and who still - to this day - would have you believe he made a smart move.

MER was done. Period. The end. Finito. Assuming BAC doesn't do something stupid - admittedly, a big assumption - this is a good long term aquisition, but only because of BAC's pool of resources behind it. By themselves, MER was on the clock, but with BAC they live to fight another day.

[JayGee]

Hopefully none: MER had the choice of going bankrupt eventually, ala LEH, or partnering up. Even though BAC's stock price is down 15%-ish from the announcement - bringing ML's value down with it - it beats the hell out of the alternative; namely getting nothing.

This is the definition of "nuisance lawsuit."

Whaah. We were next on the chopping block but instead we got a reprieve and twice as much as we had before. Whaah! It should have been three times.

Yeah, I'm really surprised by the Merrill lawsuit. General consensus is that BOA paid a premium, some are even criticizing him for that, and they escaped Lehman's fate. They're actually getting something. And they're complaining?

[atlrvr]

Where are the people who put us in this mess? They should be going to jail.

That would be a majority of the people in the United States. Chronologically, the blame falls on purchasers/sellers of Tech Stocks, 9/11 terrorists, The Fed, purchasers of houses, bankers, investors in houses, government regulators, The Fed again, real estate agents, mortgage brokers, appraisers, all major media, investment bankers, The Fed yet again, bankers again, and lastly major media again, and anyone who has sold financial stocks in the last year due to fear.

The whole country was complicit, because consumers over extended, bankers obliged to generate income when it was scarce, and the government set back and let it happen because it was the driver of the economy.

[monsoon]

^Seems like a long stretch to blame the mess caused by banks on the terrorists that caused 9/11. It does sound however like something that a certain politician(s) might say in order to avoid any responsibility. As far as I know the majority of Americans who do in fact pay their bills and are working hard to do so. Also no Credit Union, most mid-sized regional banks and community banks are not involved in this mess which kinda dispels the notion this was across the board everyone's responsibility.

[atlrvr]

Why? The economy was already in decline because of the cooling of the Tech Speculation, and after 9/11, we had the largest free fall in the stock market and plunge in consumer confidence since 1980. The result was a dramatic reduction in the fed funds rate, which was designed to get businesses to invest, but that failed, and the side affect was the purchasing and refinancing of homes instead.

Everything in my list was critical to where we were now....without 9/11 (or any other piece) the widely swinging trending of the last 7 years would have been much flatter.

There is no government propoganda involved. For every action, there is a reaction. The US didn't crash planes, and the US didn't orchestrate the ensuing weakening of the economy. They are indepedent but corrolated events.

As to your assertion that community banks and regional banks haven't been affected, I only need to point to yesterday's blurb in the CBJ. American Community Bank (based in Monroe) is taking a $2.6M charge based on investments on shares of Fannie and Freddie, which now swings the bank of from profit to loss.

[rockhilljames]

That's as concise a description about our current mess as anything I've ever read. There's plenty of blame to go around about all this mess, but certainly current events over the last 10 years have certainly played a part.

[monsoon]

......

As to your assertion that community banks and regional banks haven't been affected, I only need to point to yesterday's blurb in the CBJ. American Community Bank (based in Monroe) is taking a $2.6M charge based on investments on shares of Fannie and Freddie, which now swings the bank of from profit to loss.

A lot of people and institutions owned shares of Fannie and Freddie that are now going to suffer because of that debacle. Just like the taxpayers are going to suffer greatly. As far as I know, they are not asking the feds to bail them out. I didn't say they were not affected by the meltdown caused by the the big banks that caused this mess, I said they did not participate in its making. A huge difference. And most like all of them will get through it. And, as I stated before, no credit union is involved. They don't make sub-prime loans.

The cause of this meltdown wasn't caused by 9/11, not by the tech bust, not by the average American. It was caused by the removal of regulations on the banks in 1999 by Phil Gramm and the subsequent bad speculation in real estate that has led to all kinds of excesses by wall street and other firms like Countrywide, etc. And yes federal regulation on business has all but disappeared over the last 8 years and this is the result. It was pure corporate greed that operates under the mantra of lets privatize profits but when trouble comes, lets socialize the losses.

[JayGee]

A lot of people and institutions owned shares of Fannie and Freddie that are now going to suffer because of that debacle. Just like the taxpayers are going to suffer greatly. As far as I know, they are not asking the feds to bail them out. I didn't say they were not affected by the meltdown caused by the the big banks that caused this mess, I said they did not participate in its making. A huge difference. And most like all of them will get through it. And, as I stated before, no credit union is involved. They don't make sub-prime loans.

The cause of this meltdown wasn't caused by 9/11, not by the tech bust, not by the average American. It was caused by the removal of regulations on the banks in 1999 by Phil Gramm and the subsequent bad speculation in real estate that has led to all kinds of excesses by wall street and other firms like Countrywide, etc. And yes federal regulation on business has all but disappeared over the last 8 years and this is the result. It was pure corporate greed that operates under the mantra of lets privatize profits but when trouble comes, lets socialize the losses.

I'm guilty of listening to a lot of these talk shows on CNBC, Fox News, CNN, Fox Business News, etc., I've never once heard terrorists being to blame for this.

Irresponsible borrowers + lax lending practices + predatory (and greedy) lenders + minimum regulation + irresponsible corporate investment strategies = disaster.

[atlrvr]

Data tells the story better than any speculation.

Since 1988 (the year I selected due to the S&L crises), the 4 months that have seen the greatest year-over-year percentage decrease in the average Federal Funds rate have been, November 2001, December 2001, January 2002, and February 2002.

This really isn't a big coincidence or anything, but rather a dramatic reaction to quickly deteriorating confidence in the economy.

As a note, of the top 15 months showing decline since 1988 (past 248 months), ALL have been in late 2001/early 2002 and 2008.

It's a bit unsettling to think that people really are trying to isolate one event or one villian in this whole mess. It was precipitated with numerous events that have led us to where we are today. Without the dramatic decline in Federal Funds rates, there wouldn't have been the rush to purchase and refinance homes, which wouldn't have led to rapid price appreciation, which wouldn't have led to further pruchasing of homes (including investors), which wouldn't have led to obscure mortgages to make housing affordable (in the short term), which wouldn't have led to large bets by the investment banks in these mortgage backed securities.

I say let the banks fails since they took the risk without adhering to basic economic pricipals, though I see the argument of saving AIG since the implications would have impacts disastorous to those completely innocent of the whole housing cycle boom/bust.

[Vitamin_N]

The cause of this meltdown wasn't caused by 9/11, not by the tech bust, not by the average American. It was caused by the removal of regulations on the banks in 1999 by Phil Gramm and the subsequent bad speculation in real estate that has led to all kinds of excesses by wall street and other firms like Countrywide, etc. And yes federal regulation on business has all but disappeared over the last 8 years and this is the result. It was pure corporate greed that operates under the mantra of lets privatize profits but when trouble comes, lets socialize the losses.

Just a clarification: I think you meant to refer to the Gramm-Leach-Bliley Act, which passed the Senate 90-8. Gramm Leach Bliley did away with some of the Depression-era Glass-Steagall Act and allowed commercial banks (e.g. B of A) to buy investment banks (e.g. Goldman Sachs).

[monsoon]

.... Without the dramatic decline in Federal Funds rates, there wouldn't have been the rush to purchase and refinance homes, which wouldn't have led to rapid price appreciation, which wouldn't have led to further pruchasing of homes (including investors), which wouldn't have led to obscure mortgages to make housing affordable (in the short term), which wouldn't have led to large bets by the investment banks in these mortgage backed securities.....

Oh on that I agree with you 100%. I've said several times on this forum the fix to this problem is to raise interest rates significantly. They have been set at unreasonably low rates due to political reasons and the interest rate is being adjusted constantly as a bandaid to reckless federal spending and money policy. Namely the $10B in debt that has run up due to tax cuts, war costs, and the vast expansion of the federal government that has taken place since 2001.

In the 1990s the federal discount rate was changed just 16 times and hovered around a stable 5.5%. Since 2001 however it has gyrated wildly between 1% and 6% (sometimes swinging that much in one year) and has been changed at least 43 times. (this in just 7 years) It's an unprecedented change in methodology to and I can only assume its being done by people who don't understand what they are doing or do understand and don't care of the consequences because it's has made the economy appear better than it really is.

[Commoner]

As another side to this complicated issue, a lawsuit was filed in NY State Supreme Ct. to stop the sale of ML to BofA. They contend the shareholders should have had a hand in making the decision to sell their company to BofA. If that isn't enough, another NY law firm says it is going to file a lawsuit BofA and ML because the price offered is not high enough. They contend about the defendants, "have clear and material conflicts of interest and are acting to better their own interests at the expense of Merrill public shareholders." It will be interesting to see how many more NY law firms are going to jump on this boat.

The lawsuits sound hilarious. The ML shareholders will have their say - when they vote on the sale. That's the only say they get.

As for the price, at the time it was announced, it was a huge premium over the Friday close - especially when everyone knew to expect a much lower open on Monday following the LEH filing. Not only is the price adequate, but it's also funny for someone to allege that BofA's officers and directors owe any duty whatsoever to Merrill shareholders.

I bet a ton of NY (and other) law firms jump on the boat. They have nothing to lose. Completely unmerited lawsuits get filed all the time. Especially in situations like this.

[Commoner]

It was caused by the removal of regulations on the banks in 1999 by Phil Gramm and the subsequent bad speculation in real estate that has led to all kinds of excesses by wall street and other firms like Countrywide, etc. And yes federal regulation on business has all but disappeared over the last 8 years and this is the result. It was pure corporate greed that operates under the mantra of lets privatize profits but when trouble comes, lets socialize the losses.

I love how everytime you refer to GLBA it's "Phil Gramm" or the GOP's doing, solely. Gramm, Leach and Bliley. Add to the list WJC, who signed it into law. Don't think Chollie ("I can't understand my own finances but I'll sit on the Senate committee overseeing financial institutions") Rangel was fighting tooth and nail against it, either.

Federal regulation has been disappearing for the last 25 years, in favor of delegation to the states. You know where the most comprehensive enhancement of federal regulations applicable to public companies in the last 20 years came from? Sarbanes and Oxley, signed by Bush.

The problem was overleverage. Consumers (or "taxpayers" if you want to call them that) overleveraged their real estate investments. Financial institutions (primarily investment banks) overleveraged their risks (to unprecedented levels). The investment banks were also counterparties to many consumer banks and other businesses in derivative and other risk-diminishing transactions. Their failure doesn't just mean bad news for their investors (which includes pension funds and state treasuries) but also the trading counterparties.

This risk was borne by the taxpayer a long time ago. I'm disappointed by the heavy-handedness of the Fed's intervention in the case of AIG and Fannie/Freddie, but it certainly wasn't just the investment banks who were happy to bear risk when earnings were good and crying when losses mounted.

[Commoner]

I say let the banks fails since they took the risk without adhering to basic economic pricipals, though I see the argument of saving AIG since the implications would have impacts disastorous to those completely innocent of the whole housing cycle boom/bust.

You're absolutely right w/r/t AIG. I also think there's a rampant misunderstanding as to what these "bailouts" mean for the companies. It's not like the officers and directors make out like bandits. AIG's management was (or will be) fired and the government's sole management objective is protection of counterparties and orderly liquidation - something that prior management was clearly incapable of.

[ChiefJoJo]

That would be a majority of the people in the United States. Chronologically, the blame falls on purchasers/sellers of Tech Stocks, 9/11 terrorists, The Fed, purchasers of houses, bankers, investors in houses, government regulators, The Fed again, real estate agents, mortgage brokers, appraisers, all major media, investment bankers, The Fed yet again, bankers again, and lastly major media again, and anyone who has sold financial stocks in the last year due to fear.

The whole country was complicit, because consumers over extended, bankers obliged to generate income when it was scarce, and the government set back and let it happen because it was the driver of the economy.

That paints a good picture of all those who had a hand in it, but if Greenspan & the Fed had not championed subprimes, how are we in this situation now? How can the mortgage brokers and wall street firms package and re-sell mortgages as complex securities if that practice was not allowed (or at least restricted) in the first place?

[atlrvr]

^ Which is why I mentioned the Fed several times over my 7 year chronology.....housing was the only pulse the economy had in 2003, and the government was more than happy for banks to qualify as many people as possible. You're right though, it would be fair to ad The Fed several more times in there, as their constant tinkering to keep money flowing into housing is instrumental in this whole blow up. Since 2001, they have been more than happy to fix mounting problems with the short term solution of new/cheap money.

Oh, I forgot to implicate someone, the consumer watchdog groups that viciously attacked many of the large financial institutions in 2004-2006. Their constant bad press and pressure they were able to gain from politicians played a roll in relaxing lending standards towards groups that have historically been high risk consumers.

[monsoon]

.......

Oh, I forgot to implicate someone, the consumer watchdog groups that viciously attacked many of the large financial institutions in 2004-2006. Their constant bad press and pressure they were able to gain from politicians played a roll in relaxing lending standards towards groups that have historically been high risk consumers.

Can you give a specific example of this?

[voyager12]

Financials have never been my forte

But my 2 cents and no pun intended ... One would think that people would have learned by now that what goes up always comes down.

The government is at fault too. When the money was being raked in the mindset was hands off and regulation was seen as being intrusive. Politicians from both parties are equally at fault, who wants to upset the apple cart in prosperous times? Bad move politically.

The Fed does not have too much credibility left either. I thought a line in the sand had been drawn after F&F were rescued since Lehmans was allowed to go under.

It's a fair counterpoint to say AIG is too large to fail. It's a global conglomerate with a myriad of interests in mortgates, annuities and other relationships to ordinary Americans. Such a massive blowout could greatly damage the American and global economy.

Shakeouts like this have historical precedent and shops like Goldman Sachs and Morgan Stanley that were more responsible will be fine. From a hometown perspective I feel some abstract pride that BOA was able to swallow Merrill and hopefully Ken Lewis's gamble will pay off.

I don't think this is over though, WAMU is on pretty shaky ground and so is Wachovia. Well if it comes to it, the Fed will be faced with creating a rationale about what to do with them.

It gets to be a pretty sticky wicket when the only option left is to pick which flailing firms to save when they are run by people that should have known better. This only reinforces the "government will always be there to rescue me" mindset. But in the cases of F&F and AIG the government HAS to be there . Frustrating.

[Charlotte_native]

It's not like the officers and directors make out like bandits.

The CEO's of Freddie and Fannie were told late last week to forget their golden parachutes. At least there is a bit of sanity in this -- why reward someone who sank the ship.

[atlrvr]

Can you give a specific example of this?

Sure.....though I gave an approximate set of years when I believe the pressure was particularly high, given the rates of Americans becoming home-owners, this is from 1999, and involves the NAACP convincing Fannie and Freddie to back loans to minorities with poorer credit as a way of boosting minority home ownership.

http://www.adversity.net/special/banking_housing_02.htm

There are lots of articles in here from when this movement began. I think the following example, best demostrates how politcal pressure came into play.

"The [Freddie Mac] researchers, relying on data from credit reports, designated people as having "bad credit" if they had two bills overdue more than 30 days in the past two years, one bill more than 90 days late, a lien, a judgment or a bankruptcy. Their data showed that a higher percentage of African Americans with incomes of $65,000 to $75,000 had "bad credit" than whites with incomes below $25,000. U.S. Rep. Maxine Waters (D-Calif.), who strongly supports preferential credit and mortgage policies for designated minorites, said: "In other words we [minorities] are a credit risk because no matter how much money we make, we are also too stupid and undisciplined to know how to spend, plan and save." (Washington Post 10/05/99 by D'Vera Cohn)

Two follow up points.

1. Rep. Waters is the chair of the Subcommitte on Housing and Community Opportunity.

2. Last year, the NAACP sued many lenders claiming that they were charging minorities too high of interest.

[monsoon]

I think this is the first time that I think I have heard the meltdown we are seeing on Wall Street, the collapse of the mortgage market, and the disappearance of 150 year old banks is being caused by African American advocacy. I have seen the Black population blamed for a lot of things but that is a new one for me. There is something contradictory about the poorest and most powerless group of people in America being responsible for taking down America's financial institutions.

I tend to believe it was due to the removal of depression era protections placed on the banking system, by Phil Gramm in 1999 that ended a lot of restrictions on how the different banks could deal with each other. i.e. banks were given the freedoms they had in the 1920s and similar results have now resulted from it. The elimination of these regulations along with throwing the average person into this cauldron who still trusted their bank, was a huge recipe for disaster.

[tozmervo]

The NYTimes is reporting rumors that Morgan Stanley and Wachovia are in merger talks. This is like a juicy soap opera.

http://www.nytimes.com/2008/09/18/business/18morgan.html?hp