Bank of America - Merrill Lynch Merger

[dubone]

The two opinions on China have now been shared, now back to Charlotte.

[monsoon]

Now that the government has stopped the short selling that MS said was driving down their stock and it has jumped up a great deal in the past day, I don't really see the need for them to do a merger. Maybe it will still happen but it would not seem to be from the position of "about to fail" if they don't.

Also in those same terms, since BofA decided to purchase ML with a stock trade of a fixed ratio, it appears now that if this deal goes through that Ken Lewis will be paying substantially more than $29 for each share of ML stock. Maybe not what they wanted.

[monsoon]

The government has apparently converted Morgan Stanley into a retail bank over the weekend. I might be wrong but this would seem to be an unprecedented and unexpected move. That along with the planned federal handout to the banks making the MS merger with Wachovia less likely. In fact they may become full competitors to Wachovia.

In the same token there also appears to be a push on the shareholders at Merrill Lynch to not accept the merger deal with Bank of America. The general consensus is that now that the feds are going to have the taxpayers absorb all the bad business decisions, then they are not in danger, and don't need to merge with BofA.

[Commoner]

The government has apparently converted Morgan Stanley into a retail bank over the weekend. I might be wrong but this would seem to be an unprecedented and unexpected move. That along with the planned federal handout to the banks making the MS merger with Wachovia less likely. In fact they may become full competitors to Wachovia.

In the same token there also appears to be a push on the shareholders at Merrill Lynch to not accept the merger deal with Bank of America. The general consensus is that now that the feds are going to have the taxpayers absorb all the bad business decisions, then they are not in danger, and don't need to merge with BofA.

Mitsubishi taking a 20% stake in Morgan Stanley. Looks like Wachovia and Morgan walking away from each other (for now).

As for MS becoming a full competitor with Wachovia, it will take a lot more than a bank charter. MS has no meaningful deposit base and they can't raise one overnight (unless they buy another bank). MS isn't anywhere near competing with WB's retail franchise and WB is nowhere near competing with MS for investment banking services. WB and MS, however, have been competitors in retail securities brokerage for quite a while. This doesn't change that.

As for ML (and last week's wisdom that the stand-alone IB model is dead, unless your name starts with Goldman), the only real SH beef is that they feel like they could have extracted a better price from BAC with the urgency now diminished. There are still more people who feel like the combinations (between IBs and "banks") is inevitable than there aren't. It just isn't expected to happen in a matter of days.

[swh1972]

^^ Perhaps, but ML still has a lot of bad securities on their books, and if they were to stay independent of BofA and unload them all to the Government, they would incur huge losses, so I'm not sure that the shareholders would fare much better in that scenario.

As for Wachocia, I thought I heard that their talks with MS were off as a result of the change in status to a bank holding company.

Also, I think that it was Goldman and Morgan that applied for the change to a Bank Holding Company - not the Government forcing the move.

[monsoon]

MS has no meaningful deposit base and they can't raise one overnight (unless they buy another bank). ...

Wachovia deal is now dead according to CNBC. Morgan Stanley has signed a deal to form a global banking alliance with Mitsubishi UFJ, which BTW, is Japan's largest bank. Mitsubishi will be investing 900B Yen in Wachovia. MS is apparently going to convert its 600 brokerage outlets to something supporting retail banking. They are looking to buy some small regional banks.

[monsoon]

I don't know if it will ever come out, but I wonder how in the world the well publicized negotiations were going on in the Wachovia HQ with MS, while it seems, MS was also wheeling and dealing with Mitsubushi and the federal government in complete secrecy it seems. Some people at Wachovia have to be at little miffed at this. And more importantly it looks bad for the bank that MS walked away.

The MS/Mitsubushi deal is the kind of deal that Wachovia might have wanted. . Mitsubushi UFJ is not only one of the worlds largest banks, it is one with an impeccable brand too. It's part of the Mitsubushi keiretsu (no real western equivalent) which gives it access to significant amounts of resources beyond the direct assets controlled by the bank. A Wachovia tie up would have most likely solved a lot of problems.

It remains to be seen what happens to Wachovia now. The details of the federal bailout have yet to be determined.

[Commoner]

I don't know if it will ever come out, but I wonder how in the world the well publicized negotiations were going on in the Wachovia HQ with MS, while it seems, MS was also wheeling and dealing with Mitsubushi and the federal government in complete secrecy it seems. Some people at Wachovia have to be at little miffed at this. And more importantly it looks bad for the bank that MS walked away.

The MS/Mitsubushi deal is the kind of deal that Wachovia might have wanted. . Mitsubushi UFJ is not only one of the worlds largest banks, it is one with an impeccable brand too. It's part of the Mitsubushi keiretsu (no real western equivalent) which gives it access to significant amounts of resources beyond the direct assets controlled by the bank. A Wachovia tie up would have most likely solved a lot of problems.

It remains to be seen what happens to Wachovia now. The details of the federal bailout have yet to be determined.

As for the first paragraph, it's not that unusual (simultaneous negotiations). Further, the Fed's (a) proposal of a RTC-like bailout entity and (b) fast-track approval of MS and GS's requests to reorganize as bank holding companies were complete game changers. It would have been foolish to proced with Wachovia with the same urgency. I think MS did a service to their shareholders by balancing all three routes over the weekend.

As for the second paragraph, Japanese financial services companies are enormous and aren't restricted from commercial enterprises (non-banking/securities/insurance activities) as strictly as U.S. banks. By virtue of Japanese regulations (or non-regulations in certain areas), they have a lot more latitude in where they can extract value from the economy.

As for paragraph 3, the natives are getting restless. I don't think Congress is acting as quickly as "the bald and the bearded" would like. I think people want to see action in days, not weeks. Since last Wednesday, when stock prices were falling through the floor, nothing has really changed, except for some (cheap) talk from the Fed and SEC (and the SEC rulemaking re. short-selling is about to be reversed by the agency).

[monsoon]

^Oh I realize there are usually simultaneous negotiations in these things. I was mainly making the observation that the path they choose, was the one that apparently nobody knew about. It almost seems like Wachovia was used as a public distraction by Morgan Stanley so they could do what they really wanted to do. That is why I said we might not ever know what really happened.

In regards, to the actions of the federal government, it has come out that the Bush proposal to give the Treasury and hence the administration wide control over the economy as well as spending an amount in the range of a Trillion dollars, was presented on just two typed pages. This coming from a President who told us that Iraq was going to cost just a $100M. Obviously this isn't going to fly and the congress is doing its duty, hopefully this time, to do a thorough investigation of a governmental expansion of this magnitude. (and they complain about the costs of Universal Healthcare)

As far as what the people want, the people are outraged. The vast majority of them some say as much as 85% don't want any bailout to happen.

[Commoner]

In regards, to the actions of the federal government, it has come out that the Bush proposal to give the Treasury and hence the administration wide control over the economy as well as spending an amount in the range of a Trillion dollars, was presented on just two typed pages. This coming from a President who told us that Iraq was going to cost just a $100M. Obviously this isn't going to fly and the congress is doing its duty, hopefully this time, to do a thorough investigation of a governmental expansion of this magnitude. (and they complain about the costs of Universal Healthcare)

As far as what the people want, the people are outraged. The vast majority of them some say as much as 85% don't want any bailout to happen.

A $1,000,000,000,000 bailout is bad news. A $30,000,000,000,000 overall economic loss, however, would have been catastrophic. Nobody should be happy about any of this, and the time to act was definitely months, if not a whole year, ago. The cost of not doing this now, however, would be staggering, IMHO.

http://www.usnews.com/blogs/capital-commer...ression-20.html

[monsoon]

I am sure they are going to do something. But there is going to be some pretty strong medicine delivered to the banks that decide to take the "cure". There were some arguments made in this topic earlier about the high income people working at the bank who bring all this economic benefit to Charlotte. I am willing to bet when this bill goes through the conditions which created a number of those jobs will be gone.

[monsoon]

The sound of squealing pigs. This is what was heard when the White House and hence the Treasury relented and agreed the taxpayer bailout of the banks will include limits on executive pay. That is if the bailout happens at all. I notice that while BofA has already announced substantial layoffs due to the Countrywide purchase, the CEO of Countrywide was given a golden parachute worth tens of millions of dollars. Likewise, the executives of Merill Lynch have similar arrangements while the rank and file can expect 25,000 of their positions to disappear.

Meanwhile it is being suggested by an ex Bush official that is it un-American for anyone to be against the bank bailout. True Americans wouldn't have problems with the "shared sacrifice" that will be required to fix this problem. Its an amazing commentary. Where were these people when there were obscene profits being made? I didn't notice any sharing then.

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Probably more interesting, Doug Smith from the Observer was part of a round table on tonight's "The NewsHour with Jim Lehrer" on PBS. He mostly talked about how banking was responsible for 30,000 jobs in Charlotte and how people at these places were worried about their jobs. He cited this as one of the reasons that demand for center city condos has all but disappeared. For some reason he also brought up the re-appearance of gas lines in Charlotte.

[monsoon]

A couple of additional notes on this. Congress, for once, is faced with making a hard decision in regards to this banking bailout that may put their political careers directly at risk (except for the 2/3rs of the senate that isn't running). Congress members from both sides report getting thousands and tens of thousands of emails and phone calls from very angry constituents who are against this handout to the banks. They say there are just a handfull that support the President's plan. They angry ones also don't want them to fall again of the fear tactics of the President.

So it remains to be seen what might end up happening. I think it is pretty clear that if a bailout bill comes out, the executives of these banks are going to be forced to give up compensation if they participate in this program. In addition I think they will also have to give some of the bank's stocks to the Federal government.

---------------------------

Now sure how this might affect the banks but there is a story out there that says the Communists have told China's banks to stop interbank lending to all US banks.

[Commoner]

A couple of additional notes on this. Congress, for once, is faced with making a hard decision in regards to this banking bailout that may put their political careers directly at risk (except for the 2/3rs of the senate that isn't running). Congress members from both sides report getting thousands and tens of thousands of emails and phone calls from very angry constituents who are against this handout to the banks. They say there are just a handfull that support the President's plan. They angry ones also don't want them to fall again of the fear tactics of the President.

So it remains to be seen what might end up happening. I think it is pretty clear that if a bailout bill comes out, the executives of these banks are going to be forced to give up compensation if they participate in this program. In addition I think they will also have to give some of the bank's stocks to the Federal government.

---------------------------

Now sure how this might affect the banks but there is a story out there that says the Communists have told China's banks to stop interbank lending to all US banks.

Sorry. We all know the delegate v. trustee dichotomy inherent in representative democracies. This is an instance where, in spite of a 300:1 ratio of constituent CALLERS (note: I didn't leave it at "constituents") to their offices are opposed to the bailout, they need to man up and pass it. (Trustee, as opposed to delegate function, here.)

As for "squealing pigs" and all sorts of other colorful embellishment, I don't think there is nearly the outcry from financial executives that you indicate. It's a small price to pay.

To clear up some other issues:

The Treasury Department is taking bank stock as collateral. In a default, they can sell to recoup losses. Outside of a default, they can't do anything with it.

It's the Leftists' (see what I did there?) plan just as much as it is the President's bail-out plan. This is actually one of the most bipartisan efforts we've seen in years.

Where were people when these profits were being made (as opposed to sharing risk)? Did any of them own bank stock? Did any of them take advantage of insane interest rates for durable goods, automobile or home purchases? Hell. Did any of these idiots buy $300k homes on $65k annual salaries? Face it. The bubble had something to offer just about everyone, and everyone who made foolish leverage decisions got stung.

The populists have nothing to offer regarding a solution to this crisis. That doesn't stop them from looking backwards and blaming "the suits" and making trivial political statments (like demanding an apology from "Wall Street" to the American people [how about a "Fck you for not paying your mortgage, from "Wall Street" to the American people] during Monday's hearings). Now, at the behest of Democrats (whose support is essential in pushing this through), they're limiting comp to CEOs of banks that offload mortgage-backed securities to the Treasury Department in any of the reverse auctions, to $400k. This is going to confuse the unwashed and populist masses even more. Banks might be validly reluctant to offload mortgage-backed securities at 30c. on the dollar (and taking huge losses that have to be realized at that time, when they could have kept them on the balance sheet without marking them down) and might decide their companies would be better off letting the ABS market unclog before risking such a loss. Instead of being viewed as pragmatic, the unsophisticated will assume they didn't want to sacrifice compensation.

A complete lack of understanding, almost comically oversimplification of the problem and ignorance among the most outspoken critics is the only risk to the plan's execution. Hopefully, their legislators don't listen. (It's the "trustee" philosophy of representation, as opposed to "delegate" theory).

To paraphrase Lindsey Graham, I'd rather have an unfortunate solution than a catastrophy.

[monsoon]

It was a bi-partisan solution and process until McCain threw a political bomb in the middle of it yesterday by claiming he was suspending his campaign and debate appearance to go to Washington to solve this problem for the American people. The implication that he alone will solve it. This coming from someone who has by far the worst attendance of that 110th congress and hasn't voted in the Senate since April. It was clearly a political move that has had the effect of having each side draw the wagons into a circle and start getting ready for a shooting war.

In regards to the stock. The plan that I have heard and which is being demanded is that the Treasury take ownership of the bank stock. It is not collateral. The taxpayers are owed a portion of the profits these banks make just as they are not being held responsible for the losses. Whether this happens or not is anyone's guess because as I mentioned earlier it now has become highly charged politically.

[atlrvr]

^ I'm not sure that he was suggesting that he would solve it alone, rather that he was implying Obama is putting his own self interest above reaching a bi-partisan solution.

Obama of course had his own logical spin, which is the people need to hear from each future candidate about what they will do given the liklihood that we will still be in a dire economic situation on January 20th.

The fact is, both had their own self-serving agenda. I think both spins have credibility with the rather gullible general populous.

At the end of the day, neither man has the financial knowledge to be able to contribute to the solution, so their presence there is worth nothing other than their ability to cast a vote. That's why they both will have staffs capable of explaining the basics to them.

[Commoner]

It was a bi-partisan solution and process until McCain threw a political bomb in the middle of it yesterday by claiming he was suspending his campaign and debate appearance to go to Washington to solve this problem for the American people. The implication that he alone will solve it. This coming from someone who has by far the worst attendance of that 110th congress and hasn't voted in the Senate since April. It was clearly a political move that has had the effect of having each side draw the wagons into a circle and start getting ready for a shooting war.

In regards to the stock. The plan that I have heard and which is being demanded is that the Treasury take ownership of the bank stock. It is not collateral. The taxpayers are owed a portion of the profits these banks make just as they are not being held responsible for the losses. Whether this happens or not is anyone's guess because as I mentioned earlier it now has become highly charged politically.

To add to atlrvr's reply, Harry Reid summoned both McCain and Obama. Where is the implication from McCain that he will solve it? What about this is "clearly" a political move? What shooting war???

Broad political swipes at McCain or Obama really muddy the waters. In my opinion, the discourse really suffers when we degrade it the level of discussing McCain's attendance.

I mean ... is there a way to work Obama's tendency to vote "Present" in the Illinois Senate into the discussion?

[monsoon]

....

Broad political swipes at McCain or Obama really muddy the waters. In my opinion, the discourse really suffers when we degrade it the level of discussing McCain's attendance. ....

This is always the excuse when those responsible don't like to be held accountable. The water was already muddied. The claims the economy was "fundamentally sound" last week morphed into an economy that is ready to fall into long and painful recession" in less than two weeks. Just two weeks. This is what muddied the water. It's either pure incompetence or confident arrogance that nobody is paying attention to what has gone on. Your choice. It's not muddying the water to hold those responsible for first ignoring and telling us there are no problems, then resort to political moves at the last minute because the problems they ignored are now affecting their fortunes.

It's a matter of differing opinions on how we got here. Some said it was the removal of banking regulations by the GOP in the early 2000s to turn banking in to a free market enterprise, others say it was the irresponsibility of the people who took out the loans that went bad. I think it is definately a combination of both. The ones who took out those loans are now paying the price. It's time to focus on the ones who removed the regulations and the ones who profited from them.

BTW, my comments were not meant as a political swipe, but rather to describe what happened. This was an issue between the congress and the president until yesterday until McCain made the unprecedented and apparently unilateral move to end the campaign and debates until this was over. That made it much more political than it needed to be. There is wide skepticism as to the his motivations for doing so however Harry Ried didn't make him do that nor did Obama. So there is no equivalency in the move as far as I can see.

[nowensone]

.....

The fact is, both had their own self-serving agenda. I think both spins have credibility with the rather gullible general populous.

At the end of the day, neither man has the financial knowledge to be able to contribute to the solution, so their presence there is worth nothing other than their ability to cast a vote. That's why they both will have staffs capable of explaining the basics to them.

Well true, but given your last point, Obama had the more relevant and convincing "spin" on this, which is of course that putting off the debate was unnecessary (since there would be more value in hearing the debate, implication being more value than their collective missed presences at Congress for a day) . Which makes it quite a bit less spinful than McCain's.

[monsoon]

Was the move a political stunt or was McCain really wanting to help the banks, the economy, and the people. Well there is forum post from another UrbanPlanet topic. My guess is that Charlotte's banks are looking for relief, this has made a good resolution all the more difficult.

[monsoon]

Wamu (Washington Mutual) Bank has failed this evening and has the distinction of being the largest bank to do so in US history. The FDIC seized it's assets and are apparently in the process of selling them to JPM - Chase. I am assuming this will mean more layoffs are coming in the finance industry.

--------------

As for the bailout plan, it started to sound as if the Democrats and Republicans had worked out a compromise to support the President's plan that was announced earlier by the Treasury secretary. It was warned by Bush last night that if it wasn't passed, the USA will would face a

[Commoner]

Wamu (Washington Mutual) Bank has failed this evening and has the distinction of being the largest bank to do so in US history. The FDIC seized it's assets and are apparently in the process of selling them to JPM - Chase. I am assuming this will mean more layoffs are coming in the finance industry.

--------------

As for the bailout plan, it started to sound as if the Democrats and Republicans had worked out a compromise to support the President's plan that was announced earlier by the Treasury secretary. It was warned by Bush last night that if it wasn't passed, the USA will would face a "long and painful" recession and financial panic that would endanger the savings and economic prospects of all Americans...." Bank of American and Wachovia have said they support the plan. So this afternoon (Thursday) there were plans to announce a bi-partisan agreement on the implementation of the bailout plan. Then John McCain comes to town and that plan is torpedoed.

Apparently group of conservative House republicans jumped ship in saying they won't support it and instead offered up an alternative. Basically the responsibility will fall back on the banks. McCain for all the bluster that was made yesterday about getting involved for the American people, sat silent during much of this and when he did speak, only would speak of being responsible. There was no attempt by McCain to get the House GOPers to come back and support their own President's plan. The general consensus seems to be that McCain is now going to meet with these renegades, and 1. either support their move, or 2. get them to offer an amendment to the bill so it looks like McCain actually did something. In any case, after two days of canceling his campaign to deal with this emergency issue, McCain as taken no position and offered no solutions. If this isn't politics, I don't know what it.

If this plan is not passed, I wonder how many more WaMus will happen? Would this be more opportunity for Charlotte's banks or does it put them at risk?

It's all McCain's fault. Just kidding - ha! In all seriousness, the GOP alternative sounds pretty attractive - to induce other investors to take on the MBSs by providing tax incentives (in effect, funding the movement of paper via a reduction in tax liability of investors putting skin in the game, as opposed to a straight taxpayer-financed bailout). Unfortunately, THEY WERE NOWHERE for the last two weeks when the Bald and the Bearded were dealing with AIG and Lehman and plunging to the inevitable: a government-sponsored unclogging of MBSs. I doubt they make significant headway, and while I'd rather the tax incentive solution, something needs to happen soon and they certainly deserve the political lumps they'll (I'm talking about Congressional Republicans) sustain by virtue of providing no leadership when needed.

To reply to the last sentence, Wachovia is in dire need of that bailout (or some incarnation of it). It wasn't capitalization that did WaMu in - it was liquidity, amplified by other banks' reluctance to lend to them in the short-term. Unless National City comes out with some heinous news making them look more tenuous than Wachovia, Wachovia's on deck for WaMu's distinction.

[monsoon]

JPM - Chase is now the largest bank in the USA.

Jim Cramer on MSNBC said a short while ago that if there is no bailout then there will be 4 superbanks left in the USA. Those would be:

• US Bankcorp
  
• Wells Fargo
  
• JP Morgan
  
• PNC.
  

He went on to say these were considered the only safe large banks right now and lots of institutional money was flowing their way as it is being withdrawn from other institutions. Clearly, if he is correct, the failure of WaMu last night has rattled the market.

[cltheel.sdl]

Where is Bank of America on that list?

[atlrvr]

Ken Lewis announced that former CEO of Merrill, John Thain, will become head Global Banking, Securities and Wealth Mgmt (which includes the Investment Bank) after the merger. Brian Moynihan will no longer run the Inv. Bank and will instead be in charge of private equity and global operations.

I don't like this for two reasons. One, why keep the head of the bank that was having tremendous losses. Granted it was Stanley O'Neal that bet the bank on RMBS, but Thain didn't exactly salvage the ship, so I'm not sure why he gets rewarded. I suppose ML employees rather report to Thain than a current BofA exec, but still....

Secondly, the WSJ is dubbing Thain the likely successor to Lewis as CEO after he retires. That can't be good for Chalotte's desire to keep the HQ for the long term.