It’s a $50 billion deal that’s sending shock waves through Wall Street today. The price is 1.8 times stated tangible book value.
Bank of America has agreed to buy Merrill Lynch. The combination will be a monolithic financial services institution with an unrivaled breadth and global reach.
“Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world with the combination of these two firms,” said John Thain, chairman and CEO of Merrill Lynch.
When the acquisition closes next year, it will make Bank of America the number one underwriter of global high yield debt, the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisitions based on pro forma first half of 2008 results.
What’s more, the combined company would have leadership positions in retail brokerage and wealth management. By adding Merrill Lynch’s more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $2.5 trillion in client assets.
The combination brings global scale in investment management, including an approximately 50 percent ownership in BlackRock, which has $1.4 trillion in assets under management. Bank of America has $589 billion in assets under management.
Should any one financial institution be so big? Are we heading for another round of cross-discipline consolidation that will leave consumers with fewer choices? Is this a clear sign that the global financial crisis is worsening? There are many questions and fewer answers.
The fact that this deal was put together in 48 hours (in John Thain’s words), tells you that this crisis is far deeper and far more drastic than anyone is admitting. Remember all three firms that have collapsed (Bear Stearns, Lehman, and Merill - who is just trying to pre-empt collapse by being bought) all survived the Great Depression.