Monday, September 15, 2008 0 comments ++[ CLICK TO COMMENT ]++

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.

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