Bank of America Takeover of Merrill Lynch Has Huge Upside

The takeover of Merril Lynch by Bank of America (still have to be approved by shareholders if I'm not mistaken) has huge upside for Bank of America. It's risky but it has very positive long term implications. DealBook from New York Times mentions some of the positives in this post and this one.

Bank of America expects to save $7 billion (pre-tax) which seems reasonable to me. Although executives rarely hit their cost savings target, this may be one of the cases where it is easily achievable. DealBook also mentions that this deal will catapult Bank of America to the #1 spot in equities underwriting and debt underwriting. They would end up fourth in mergers & acquisitions (all numbers from 2008).

I'm not sure what Merril Lynch shareholders think of all this. They paid $50 million to $120 million (depending on ultimate value of stock options and the like) to save Merril Lynch but I'm not sure whether the shareholders consider the outcome worth it for their money. The stock price is off 50% to 70% during his tenure. Although most of the problems were due to his predecessors and I'm not sure how much is his fault (possibly should have raised capital earlier or sold off assets) it still seems like a steep price to pay. I am always of the opinion that leaders, whether CEOs or politicians or military leaders or community leaders or whoever, are always given too much credit and too much blame, so it's never clear if anyone is really to blame for the mess. Don't forget that shareholders are often responsible for pushing companies in a direction that ends up hurting everyone in the long run.

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>