Transcript Bank of America and Merrill Lynch Merge

Investment Banks vs. Commercial Banks
An investment bank:
 aids a company in acquiring funds
 offers advice on company transactions, such
as mergers and acquisitions
 generates funds for a company by selling
stock to public shareholders or by seeking
out venture capital or private equity in
exchange for stake in the company
Investment Bankers:
 are real-estate agents for companies
 connect buyers and sellers of
companies to create deals
“We don’t create anything and we
don’t buy anything. We just sell things that
aren’t ours to begin with.”
-Investment Banker from Merger Inquisitions
A commercial bank:
 lends money to customers
 accepts deposits to personal and corporate
accounts
 finances loans for individuals and businesses
Investment Banker
Commercial Banker






Founded in 1914 by Charles Merrill
and Edmund Lynch
Made several successful investments early on and
quickly focused on investment banking
Was the first firm on Wall Street to publish an
annual fiscal report (1941)
When Lynch died in 1952, the company officially
changed its name to Merrill Lynch and Co.
The company continued to build its brokerage
network and eventually became known as the
“thundering herd”
The company went public in 1971





In November 2007, CEO Stanley O’Neal
resigned after the company posted a $2.24
Billion loss from subprime mortgages
In December, John Thain, then CEO of the
NYSE, became the new CEO of Merrill Lynch
Later that month, the company sold its
commercial finance division to General Electric
in an effort to raise capital
In July 2008, Thain announced a $4.9 Billion
loss for the fourth quarter
In 12 months, the company lost $19.2 Billion,
equivalent to a loss of $52 Million/day




In August, the company became
embroiled in a series of lawsuits
regarding misrepresentation of risk on
auction rate securities
On September 5th, Goldman Sachs
downgraded the company to a “sell”
and, Bloomberg revealed that the
company had lost $51.8 Billion as a
result of bad mortgage investments
On September 14th, Bank of American
purchased Merrill Lynch for $50 Billion
in stocks, at $29/share- a 61% drop
from 12 months prior
Merrill Lynch had over $1.02 Trillion
in assets and over 60,000 employees
worldwide









Began as the Bank of Italy in 1904 (San Francisco)
Merged with Bank of America (Los Angeles) in 1929 and changed its
name to BankAmerica
Introduced the BankAmericard (credit card) in 1958 which eventually
changed its name to VISA in 1975
BankAmerica expanded outside of California for the first time with
acquisition of Seafirst Corp. (Seattle, Washington) in 1983
Was the largest U.S. bank in terms of deposits until 1997 when it fell
behind Nations Bank
Nations Bank was founded in Charlotte NC in 1874, first known as
North Carolina National Bank
Nations Bank merged with the San Francisco based BankAmerica in
1998 to form what is known today as Bank of America
Headquarters were relocated to Charlotte in the $64.8 billion deal
Still operates under Bank of Italy’s 1927 Federal Charter







2004: National Processing Company (Kentucky)
$1.4 billion
2004: FleetBoston Financial (founded in 1784) $47
billion
2006: MBNA (credit card giant) $35 billion
2007: United States Trust Company (from Charles
Schwab Corp.) $3.3 billion
2007: ABN AMRO North America LaSalle Bank
Corp. & LaSalle Corporate Finance from ABN AMRO
$21 billion
2008: Countrywide Financial (mortgages) $4.1
billion
September 14, 2008: announced they would
purchase Merrill Lynch & Co. for $50 billion







With acquisition of Merrill Lynch & Co. , Bank of
America is currently the largest financial services
company in the world
Has global headquarters in New York, London,
Singapore, and Hong Kong
Part of the Global ATM Alliance
Examples of Services: checking, savings, credit
cards, mortgages, home equity, auto loans,
personal loans, IRAs (individual retirement
account), investment services, mutual funds,
insurance
Kenneth D. Lewis is current CEO
207,000 employees
Market Cap: $170.9 billion
For Merrill Lynch
For Bank of America
•Stock had lost 61% of its value
since current CEO John Thain took
over, selling at -12.71% return rate
•Acquired one of the largest
companies on Wall Street, making
the financial world smaller
•Acquisition raised stock price to
$29/share, a 70% premium
•Projected $7 billion in pretax
savings
•Some security for the first time
since the beginning of the credit
crisis at the start of the year
•Better expand global footprint and
take advantage of retail market
•Rival Citigroup Inc. for largest bank
•Will be able to offer Merrill Lynch’s
retail brokerage services to large
customer base
•Merrill Lynch is part of the
brokerage behemoth—it has more
than 20 000 advisers and more than
$2.5 trillion in client assets
For Merrill Lynch
For Bank of America
•Possible job loss
•Investors may not want mortgage
and real estate funds to be
contributed to their portfolios
•More aggressive than the
conservative Bank of America so
brokers may be moving to other
firms, taking clients with them
•Overpaid for Merrill Lynch based
on its current value; difficult to
estimate company assets in
current market environment
•$29/share is still well below 2007
peak of $98/share
•Ability to absorb two large
companies (Countrywide and
Merrill Lynch) is questionable
•Merrill Lynch has reported four
quarters of losses and is a risk


“Acquiring one of the premier wealth
management, capital markets, and advisory
companies is a great opportunity for our
shareholders,” said Bank of America
Chairman and CEO Ken Lewis.
“I believe that this will become the leading
financial institution in the world,” said Merrill
Lynch Chairman and CEO John Thain.