BofA-Merrill Lynch

On Sept. 15, Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion, a deal that will make the top U.S. retail bank the world's largest wealth manager and broker as well.

2009

Nov. 4: BofA, GMAC make an unlikely pair: Bank of America Corp. (NYSE:BAC) and GMAC LLC are two wounded financial giants with mounds of debt, whose futures look cloudy at best. One scenario that the TheStreet.com sees is an unlikely merger between the two financial companies. - Gerald Magpily

Nov. 4: BofA's Moynihan in hot water?: The New York Post reports Bank of America Corp.'s (NYSE:BAC) Brian Moynihan, who is a top candidate to replace Ken Lewis as CEO, may have not been a member of the bar when he offered legal advice for a little over a week during the bank's merger with Merrill Lynch. - Maria Woehr

Nov. 2: BofA still has trouble finding a CEO: The latest to refuse the gig is Bank of New York Mellon Corp. (NYSE:BNY) CEO Robert Kelly, according to The Wall Street Journal, which also reported that Bank of America has talked a number of times with the BNY chief. - Matthew Wurtzel

Oct. 28: Bank of America's CEO search stalls: Apparently Bank of America Corp.'s (NYSE:BAC) search for a new CEO is at a standstill, according to a Wall Street Journal report. The board was hoping to pick a successor for Ken Lewis by Wednesday, but the committee choosing the new CEO needs more time. - Maria Woehr

Oct. 27: McCann moves to UBS: After a legal fight with Bank of America Corp. (NYSE:BAC) / Merrill Lynch to shorten the duration of his noncompete clause, Robert McCann is now CEO of UBS (NYSE:UBS) Wealth Management Americas and a member of the group executive board of UBS. - Baz Hiralal

Oct. 26: BofA's unanswered questions: The most important questions in the saga of Bank of America Corp.'s (NYSE:BAC) purchase of Merrill Lynch & Co. Inc. remain unanswered despite recent revelations about the deal.

According to the American Lawyer Daily, lawyers at Wachtell, Lipton, Rosen & Katz "were saying very different things to their client and to federal regulators" last December. In other words, they were representing their client. Wachtell advised the bank last December that it had only a slim chance of being able to walk from the deal based on a material adverse change at Merrill but argued the opposite to regulators. - David Marcus

Oct. 21: BofA near deal to sell First Republic Bank: A consortium of investors, led by private equity firm General Atlantic Partners, has clinched a deal to buy First Republic Bank from Bank of America Corp., according to sources. - Vipal Monga

Oct. 20: BofA e-mails tell another story about Merrill deal: Several e-mails and documents obtained by investigators from Bank of America Corp. (NYSE:BAC) Friday reveal another story concerning the deal between BofA and Merrill Lynch & Co.

As The Deal predicted, the documents (available on Dealbook) did bring more light to the role Brian Moynihan played in the Merrill deal. Moynihan, the head of consumer and small-business banking, is being considered a candidate for CEO of BofA along with Greg Curl, who was the key dealmaker behind the deal before he was promoted to chief risk officer. - Maria Woehr

Oct. 16: BofA's third-quarter earnings: Bank of America Corp. (NYSE:BAC) reported a third-quarter 2009 net loss of $1.0 billion, or 26 cents per diluted share. With dividend payments included, the total loss was $2.24 billion. The loss exceeded analysts' estimates of 6 cents a share. - Maria Woehr

Oct. 15: BofA third quarter earnings preview: Bank of America is expected to lose 6 cents a share, according to a Thomson Reuters poll. That estimate might be a bit conservative as BofA is treading into uncertain waters. Earnings may be impacted by the following. - Maria Woehr

Oct. 14: Unfortunately it's screw the shareholders: "Unfortunately it's screw the shareholders!!" Bank of America Corp.'s (NYSE:BAC) director Charles Gifford wrote to Thomas May in an e-mail exchange during a conference call on Jan. 15 about Merrill Lynch & Co.'s losses, according to e-mail messages handed over to the House Committee on Oversight and Government Reform and reviewed by The New York Times. - Maria Woehr

Oct. 13: BofA turns to Russell Reynolds in CEO hunt: Bank of America Corp. (NYSE:BAC) has turned to executive search firm Russell Reynolds Associates to help find its next CEO, according to The Wall Street Journal. The move signifies that BofA is open to hire a candidate outside of its ranks. - Gerald Magpily

Oct. 13: SEC, BofA agree on legal documents: The Securities and Exchange Commission said Tuesday it has reached an agreement with Bank of America Corp. over the disclosure of documents showing legal advice it received while planning to buy Merrill Lynch & Co. last year. - Donna Block 

Oct. 9: Gossip on the street: Sallie Krawcheck was apparently on the list of names to replace Lewis, but she was vague about being a contender for the position and the bank's strategy with Merrill Lynch on CNBC per Bloomberg:

Sallie Krawcheck, Bank of America Corp.'s head of wealth management, said she won't do "stupid things" to pay policies that might spur financial advisers to leave the bank. ... "We are not doing any of that stuff," Krawcheck, 44, said, referring to changes in compensation and speculation that she would "smash U.S. Trust and Merrill Lynch together."

- Maria Woehr

Oct. 9: BofA shareholder Finger opposes CEO nominees: Bank of America Corp. (NYSE:BAC) is expanding its new commodities team by 25% over the next two to three years, according to Forbes.

Oct. 8: According to an SEC document, Finger opposes making Greg Curl or Brian Moynihan CEO of the bank due to their involvement in its acquisition of Merrill Lynch & Co., a deal Finger has slammed repeatedly. (See filing below.) Finger is also recommending that the board hire internal counsel to investigate the Merrill transaction and bonuses. - Maria Woehr

Oct. 7: BofA CEO to be Curl or Moynihan?: So the board of Bank of America Corp. (NYSE:BAC) has narrowed down its list of CEO candidates to three -- for the time being. The Deal spoke to management and financial services consulting expert Dino Mauricio of Getzler Hentich & Associates LLC about the candidates suggested by The Wall Street Journal -- Greg Curl, Brian Moynihan and Greg Fleming -- and he offered some thoughts.

Mauricio said of Moynihan, BofA's head of consumer and small-business banking:

"Moynihan -- with meaningful experience running several BoA divisions, general counsel background and the person who won the highly coveted global head of banking and wealth management post last January -- is the more capable successor despite some past tensions with Merrill executives in the wake of the John Thain dismissal."

In simpler terms, Mauricio said Moynihan's the best candidate. On the topic of Curl, the bank's chief risk officer, Mauricio pointed to his weaknesses:

"While Greg Curl obviously brings strong credit/risk credentials, many feel BoA is no longer in 'crisis' and the new CEO needs to be a leader focused on energizing/unifying the business units, effectively implementing necessary changes to the organization and operations, and addressing the broader challenges of achieving profitable growth in a difficult global economy." - Maria Woher

Oct. 6: Krawcheck remains a long shot: Sallie Krawcheck remains a long shot to take over for Ken Lewis. Talk of her candidacy is wishful thinking from those who would like to see an outsider lead the bank -- and Krawcheck has never been a real "banker." The likeliest possibility here is that BofA is going to tap someone who both knows the institution and has traditional banking experience in areas like credit, risk management, consumer banking and regulation. - Matthew Wurtzel

Oct. 5: BofA's emergency CEO replacement plan: Bank of America Corp.'s (NYSE:BAC) CEO Ken Lewis steps down on Dec. 31, but that might not be fast enough to outrun the various parties hoping to take Lewis down over the Merrill Lynch & Co. purchase. With that in mind, BofA's board of directors is reportedly close to settling on an "emergency CEO pick in case legal turmoil forces" Lewis to step down even sooner, a source told The Wall Street Journal this weekend. - George White

Oct. 2: The Deal's Maria Woehr, upon news of Ken Lewis's departure, takes a look back at his career. She writes:

Lewis, perhaps learned too much from McColl and the culture that he built over at BofA. Lewis joined BofA in 1969 and played an essential role as the operator and integrator of McColl's aggressive acquisition strategy, focusing in on the business operations, as Shawn Tully of Fortune Magazine pointed out in his 2005 article. "At first NCNB [BofA's predecessor] struggled to book piddling profits. McColl sent in Lewis in 1985 [to manage sales operations and management in all of the bank's McColl was acquiring]. In three years he transformed the sleepy branches into selling machines," Tully wrote.

Oct. 1: BofA's Ken Lewis to retire at year's end: After more than 12 months on the hot seat, Bank of America Corp.'s (NYSE:BAC) CEO and president Ken Lewis announced that he will retire at year's end. The news, released on Wednesday after market close, will mark the end of the 62-year-old Lewis' career at the bank he joined in 1969; he has been CEO since 2001. - George White

Sept. 23: BofA shareholder Finger: Lewis should resign: Bank of America Corp. shareholder Jonathan Finger of Finger Interests Number One Ltd. says that CEO Ken Lewis should resign in the wake of all the high-profile investigations into the bonuses paid to employees at Merrill Lynch & Co. after the merger.

"Yes, I think Lewis should step down. The investigations take away from Lewis' effectiveness as a leader, and his position has been compromised," Finger stated in a phone call with Dealscape Wednesday morning. - Maria Woehr

Sept. 23: Bank of America Corp.'s Merrill Lynch & Co. plans to expand its broking business and hire client advisers in Australia, according to The Wall Street Journal. Also, Craig Drummond has been tapped to head Bank of America Merrill Lynch's Australian operations, replacing Paul Masi as country executive. Masi left for personal reasons. Drummond (pictured) was executive chairman and co-CEO of Goldman Sachs JB Were Pty. Ltd., where he spent 23 years. BofA Merrill also hired Peter O'Connor from Deutsche Bank AG to head its Australian resource research team. - Baz Hiralal and Maria Woehr

Sept. 22: Bank of America moves to elude Washington's grip: Bank of America Corp. agreed late Monday to pay the U.S. government $425 million to end an asset guarantee that was established to help the largest U.S. bank close its purchase of Merrill Lynch & Co. The bank took on the guarantee to protect itself against future losses on as much as $118 billion of assets when it agreed to buy Merrill Lynch in a $50 billion, all-stock transaction in September 2008, when Lehman Brothers Holdings Inc. went bankrupt. The final sale price was less than half that figure, as Bank of America stock tanked before it closed in January. - Peter Moreira

Sept. 22: BofA's Ken Lewis to join other fraudsters?: Bank of America Corp. has apparently agreed to a Tuesday meeting with chairman of the House's Committee on Oversight and Government Reform, Rep. Edolphus Towns, D-N.Y., after the bank missed a deadline to turn over documents his panel sought in BofA's takeover of Merrill Lynch & Co, according to Bloomberg. But for CEO Ken Lewis, this could be the beginning of the end. - Maria Woehr and Donna Block

Sept. 21: Congress to BofA: Spill your guts: With the bank now staring at a February jury trial over whether information was withheld from shareholders on the two issues, Congress has jumped into the fray at the last minute and threatens to throw BofA's game plan into disarray.- George White

Sept. 16: Cuomo slaps BofA's board with subpeonaes: New York Attorney General Andrew Cuomo is ramping up the pressure on Bank of America Corp. (NYSE:BAC) as he has reportedly subpoenaed five members of the bank's board of directors for his investigation into whether shareholders were misled over the purchase of Merrill Lynch & Co. Media reports did not name the five board members, and thus far Bank of America has not commented. Cuomo's office plans to eventually subpoena all 15 board members present in December, a person familiar with the matter told The Wall Street Journal. - George White

Sept. 9: Cuomo and BofA in bicep-flexing match: New York Attorney General Andrew Cuomo's office sent a letter on Tuesday to BofA's outside representation threatening to file charges over the acquisition of Merrill Lynch & Co., and asking (demanding?) the bank to allow its lawyers to be questioned. Stripping away the legalese, the letter basically says that Bank of America cannot invoke attorney-client privilege to hide certain information from investigators while also saying it relied on its attorney's legal advice as a justification for each of its failures to disclose material information, including cascading losses and bonus payments. - Sara Behunek

Aug. 25: Ex-Merrill wealth chief sues BofA: Robert McCann, former vice chairman and president of the global wealth management division at Merrill Lynch & Co., is suing Bank of America Corp. (NYSE:BAC) for not allowing him to join a rival company. McCann, a 26-year Merrill veteran, left the firm a few days after it was acquired by Bank of America in January. He was one of the first major names to defect before a mass exodus of bankers we have tracked since the start of 2009. BofA wants him to wait for a year before joining a rival, while McCann thinks he should be allowed to join after six months. - Baz Hiralal

Aug. 24: BofA's saga over Merrill bonuses continues: Bank of America Corp. (NYSE:BAC) defended in a court filing its decision not to disclose details about the bonuses Merrill Lynch employees would receive in advance of a shareholder vote on the merger. Judge Jed Rakoff demanded about two weeks ago that the bank and the Securities and Exchange Commission break down the details of the $33 million settlement. According to The New York Times, "If Judge Rakoff does not approve the $33 million settlement, then the S.E.C. will probably drop the case, renegotiate the settlement amount or take it to court." - Maria Woehr

Aug. 11: BofA settlement with SEC comes under scrutiny: At the federal courthouse in Manhattan, Judge Jed Rakoff heard how Bank of America Corp. (NYSE:BAC) and the Securities and Exchange Commission came to settle on a $33 million payment to resolve a civil lawsuit brought by the regulator against the bank. The SEC accused the bank of misleading shareholders by not disclosing it authorized the payment of up to $5.8 billion of bonuses to Merrill Lynch & Co. employees. Rakoff once again refused to sign off on the $33 million settlement between the bank and the SEC. The judge also queried the role of the law firms that drafted the disclosure materials in advance of the Merrill takeover. - Donna Block

Aug. 10: Who owns BofA, if the gov't owns Lewis?: Bank of America Corp. (NYSE:BAC) CEO Ken Lewis has been defending his reputation amid his firm's wrangling with the government over settling the Merrill Lynch & Co. bonus issue. With his position under fire, it seems that shareholders are backing the government's recent meddling with BofA's management even though, ironically, it might have been the government's involvement that got Lewis into the predicament in the first place (assuming Lewis' allegations that prior Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke pushed him to close the Merrill Lynch deal against his better judgment). - Maria Woehr

Aug. 7: American Banker not so keen on Ken Lewis: There was much talk of a culture clash before BofA acquired Merrill Lynch & Co. to get its "thundering herd" of brokers. It especially ramped up in January just days after the deal closed when Robert McCann, then shepherd of the herd, left the combined BofA Merrill. And of course, in the following months, scores of bankers departed for competitors, especially boutique banks. Activist investors and others even called for the resignation of Lewis, who relinquished his chairmanship. - Baz Hiralal

Aug. 7: The quest for the truth from BofA: Rep. Edolphus Towns, D-N.Y., chairman of the House Committee on Oversight and Government Reform, is on a mission to find out who knew what and when they knew it regarding Bank of America Corp.'s (NYSE:BAC) $50 billion deal for Merrill Lynch & Co.Towns sent a letter to Bank of America chief executive Ken Lewis asking him to provide additional documents about the deal and to deliver them by Aug. 14. "The further we go into this investigation, the more troubling it becomes," said Towns, in a statement. - Donna Block

Aug. 6: Rejected: BofA's SEC settlement with Ken Lewis: Oh no, it's really not a good day to be Bank of America Corp. (NYSE:BAC) CEO Ken Lewis. A U.S. federal judge has refused to approve a $33 million settlement that was struck between regulators and BofA for misleading investors over the acquisition of Merrill Lynch & Co. Judge Jed Rakoff says that a settlement might be unfair to the public. According to a Reuters story,"The judge is focused on whether the fine agreed between the SEC and Merrill is in the public's interest -- particularly given that Bank of America has received $45 billion in taxpayer funds." - Maria Woehr

Aug. 4: Does BofA want to be a part of it, in New York?: Could Bank of America Corp. (NYSE:BAC) make a brand new start of it, in old New York? With the Charlotte, N.C.-based bank's recent staffing changes at the top, a large number of Wall Streeters seem to be at the ready to fill the void when CEO Ken Lewis ultimately retires. If a Wall Streeter ends up taking the reins from Lewis, how long before the bank ditches Charlotte for New York as its headquarters? Sure, the board may still have good old boys from Charlotte loyal to Lewis, and his old boss Hugh McColl is still on it, but the pressure will be on to move to the country's financial capital. - Matthew Wurtzel

Aug. 3: BofA to pay $33M to SEC: As if Bank of America Corp. (NYSE:BAC) did not already have enough headaches from its acquisition of Merrill Lynch & Co., now the bank is digging into its pockets to field a $33 million settlement after the Securities and Exchange Commission charged it for misleading investors over the acquisition. The settlement is due to charges that investors were misled by the $5.8 billion bonuses Merrill Lynch executives received when the the firm was acquired. - Maria Woehr

Aug. 3: Krawcheck in at BofA, McGee out and more: In order to "position a number of senior executives to compete" to succeed him "at the appropriate time," Bank of America Corp. (NYSE:BAC) chief executive Ken Lewis announced several management moves. He brought in former Citigroup Inc. (NYSE:C) chief financial officer and global head of wealth management Sallie Krawcheck to run BofA's global wealth and investment management operations. She takes the role from Brian Moynihan, who was promoted to head of consumer banking. Ric Struthers will continue to run the credit card business and be a member of the executive management team, reporting to Moynihan. - Baz Hiralal

Jan 22: Thain leaves BofA as Merrill digestion sours: John Thain is leaving Bank of America Corp. and is being replaced by Brian Moynihan. The departure comes three weeks after BofA completed a hasty acquisition of Merrill Lynch & Co. and days after it got another bailout from the government, this one worth $138 billion. Thain, former chairman and CEO of Merrill Lynch, was president of global banking, securities and wealth management for Bank of America. The departure was announced after a meeting with BofA CEO Ken Lewis about the future of the combined companies. From January 2004 to December 2007, Thain was chief executive and a director of NYSE Euronext Inc. following the NYSE Group and Euronext NV merger in June 2006. Before that, Thain worked at Goldman Sachs Group Inc., where he was president and chief operating officer. - Baz Hiralal

For more news on the BofA-Merrill merger, see The Deal's BofA Merrill Lynch exodus Dealwatch

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2008: MERRILL'S STAR BANKERS, CALL HIGHLIGHTS AND WIDER IMPLICATIONS

Sept 15: Bank of America takes Merrill Lynch, vows to keep Merrill culture intact

On Sept. 15, Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion, a deal that will make the top U.S. retail bank the world's largest wealth manager and broker as well. The two parties struck the agreement at the climax of a frenzied weekend in which Lehman Brothers Holdings Inc. filed for bankruptcy protection and speculation abounded that American International Group Inc. and Washington Mutual Inc. were in deep trouble. 

The Charlotte, N.C., buyer is offering 0.8595 of a Bank of America share for each Merrill Lynch common share, the banks said in a statement. The deal values Merrill stock at $29 and represents a premium of 70% to Merrill's closing price Friday of $17.05. While not quite a fire-sale, the price is equal to about 30% of Merrill's record high of $97.69 reached in January 2007 and is equivalent to 1.8 times stated tangible book value. - Peter Moreira, Laura Board and George White

Sept. 15: BofA buyout can't quite save Temasek's investment in Merrill: At first glance, it looked as if the shotgun marriage of Merrill Lynch & Co. with Bank of America Corp. had bailed out Temasek Holdings Pte. Ltd., who had poured nearly $6 billion into the investment bank this year, only to watch the value of its stake evaporate. The Singapore government-controlled entity is Merrill's largest shareholder with a 7.5% stake. Temasek put $5 billion into Merrill at $48 a share between December and February, but a reset payment for losses on the original investment and additional $900 million poured in last month ended up averaging out the sovereign wealth fund's buy-in price to only $23.11 a share, based on Bloomberg calculations from exchange filings. - George White

What will become of Merrill's stars?

With the BofA-Merrill deal, three unnamed Merrill directors will join BofA's board. No role was announced for Merrill chairman and CEO John Thain. By adding Merrill Lynch's more than 16,000 financial advisers, BofA would have the largest brokerage in the world with more than 20,000 advisers, making it the ninth-largest adviser on global mergers and acquisitions.

Merrill has been beefing up its ranks of late, most recently hiring Wall Street veteran George "Woody" Young III as global head of technology, media and telecommunications investment banking, based in New York. Young arrived after his noncompetition clause with Lehman Brothers Inc. expired. Young left Lehman in March 2007, where he was head of the global communications group.

A week before adding Young, Merrill hired Michael Nierenberg from J.P. Morgan Chase & Co. to head the global mortgages and securitized products businesses, and James De Mare from Citigroup Inc. was added to run the company's mortgage trading operations. - Baz Hiralal

See also: Merrill's Thain keeps tapping old friends

Sept 15: BofA-Merrill conference call highlights

Among the highlights of the call are:

• The structure of the management team is yet to be determined
• Both Bank of America and Merrill Lynch said they have nominal exposure to Lehman
• The deal is expected to close in the first quarter of 2009 and provide cost savings of $7 billion
• Merrill holds just under 50% of BlackRock Inc, which has a market value of about $14 billion; "there are no quirks when it comes to that holding."
• Bank of America is comfortable with the progress Merrill Lynch has made in reducing their risk. - G.W.

Sept. 12: Bank Watch: BofA and Merrill?

The deal wasn't a total surprise.

Like a river overflowing its banks, the rumors surrounding Lehman Brothers Inc. and Washington Mutual Inc. continue to surge back and forth. Now getting caught up in the deluge: Merrill Lynch & Co. The Wall Street Journal's "Heard on the Street" column, asked whether Bank of America Corp., which has been widely speculated to be in talks to bid for Lehman, might be holding out for something bigger, namely Merrill Lynch. The column wrote, "After all, in this crisis, [Ken Lewis] can probably only step in once to buy an investment bank on the cheap." - Matthew Wurtzel

IS IT THE BEGINNING, OR IS THIS THE END?

Is this the end, or just the beginning, of an 'independent' Wall Street?

It's difficult to sort out the important from the trivial, the stuff that matters from the stuff that will blow away and be forgotten. The big question -- what next? -- I'll leave to the fortune tellers among us. What's a lot easier to conclude -- everyone has -- is that Wall Street fundamentally changed this weekend. Obviously, the bankruptcy of Lehman Brothers Holdings Inc., the acquisition of Merrill Lynch & Co. and the attacks on Morgan Stanley and Goldman, Sachs & Co. seem to mark an effective end to the long competitive jostling between commercial banks and investment banks, and the triumph of the universal bank model. - Robert Teitelman

GENIUS BOFA STRATEGY?

Like its rival J.P. Morgan Chase & Co., Bank of America has so far weathered the financial crisis well and used it as an opportunity to grow rather than retrench. Bank of America in July completed its purchase of another subprime-battered institution, mortgage lender Countrywide Financial Corp., for $2.5 billion in stock. Bank of America had also been in the hunt for Lehman Brothers before pulling out over the weekend. - P.M., L.B. and G.W.

July 21: BofA's Countrywide deal could be a steal

When the storm surrounding the financial services industry clears, Bank of America Corp.'s $4 billion acquisition of mortgage lender Countrywide Financial Corp. may be looked at as one of the biggest all-time steals of deal history. The bank said on its second-quarter earnings announcement Monday that Countrywide will add profit to its bottom line in 2008. Those developments are better than expected. Overall, BofA's second-quarter earnings came in better than expected as its net income declined 41% to $3.41 billion, or 72 cents a share, from $5.76 billion, or $1.28 a share, a year earlier. Bloomberg surveyed analysts that expected BofA to report a 54 cent average estimate earnings per share. - Gerald Magpily

MEDIA ROUNDUP

Rumors have swirled around Merrill for months. And the media has labored to explain what was going on. Consider just the last few months:

Aug. 5: Thain loses credibility as Merrill marches on 'well-capitalized'

Has Merrill Lynch & Co.'s CEO John Thain lost all credibility? There seems to be a lot of contradictions between his statements and actions as of late, and the media is making a mockery of him for it. - Maria Woehr

Aug. 1: Norris on Thain: The sweaty psychology of capitulation

In Friday's New York Times, Floyd Norris struggles to capture exactly what Merrill Lynch & Co.'s John Thain did this week. Did he panic? Did he capitulate in a sweaty paroxysm of desperation? Did he cave in to fear? Is Thain not having fun anymore, like he seemed to be having at Davos when he spoke to Norris? (Ah, Davos, only six more months to go.) And why won't he return calls? (The fact that Merrill is in a quiet period while it tries to raise $8.5 billion doesn't seem to matter.) Norris does reach beyond Thain's personal state of mind to wonder whether all that fear he envisions sloshing around Merrill may mean the stock market bottom has been reached. He doesn't know, but maybe. - R.T.

July 31: The surreal crisis: Merrill, Nutmegs and mark-to-market

As soon as Merrill Lynch unloaded $30 billion in CDOs to Lone Star Funds, speculation bubbled up that a new floor had been set to revalue mortgage CDOs. Numbers were tossed about -- 22 cents on the dollar, 36 cents -- suggesting that battered firms such as Citigroup Inc. or Lehman Brothers Inc. needed to immediately follow with similar write-downs and capital infusions. Then, for the rest of the week, the papers scrambled to explain why (a) that couldn't be done and (b) how Merrill needed to give out more information or get everyone really, really mad. In short, first frighten, then bewilder. - R.T.

CLEANING UP THE BALANCE SHEET

July 29: If this is capitulation, why does Merrill Lynch go first?

You've got to believe that when John Thain started putting together his most recent attempt to clear the decks at Merrill Lynch & Co., he wasn't thinking that he'd have to announce it right after the Dow thudded 200 points. But that's what happened, which tells you a couple of things: You can't time these deals, and Thain's luck has been generally lousy. That said, another big write-down, the sale of $30 billion in CDOs to Lone Star Funds and a public offering may be what the doctor finally ordered for Merrill. Or not. We'll see. The argument made Tuesday is that Merrill is finally clearing the decks, taking the big loss it should have shouldered many months ago. Maybe. Timing is always the tough part. It is a bold move, however, given the sheer number of write-downs it has absorbed and the mountain of capital it has raised, and clearly a bet that a non-CDO future is better than a CDO-heavy past. And indeed, that magic word, capitulation, has been uttered about Merrill's move like a chant. Although a number of banks have sold off blocks of bad mortgages -- Citigroup Inc. in particular -- the sense is that Merrilll is making the dramatic move to get itself approximately healthy. In other words, capitulation. In other words -- hope springs eternal -- the dawn is upon us. - R.T.

See also: Merrill will be looking for more cash after $4.9B loss , Merrill keeps BlackRock stake to preserve ratings

WHERE IT ALL BEGINS

Sept. 15: Deal caps off a year of indignity for Merrill Lynch

The bank ousted then-chief executive Stanley O'Neal last October as its exposure to mortgage-backed assets built up losses. As of July, the company had lost $19 billion, raised about $30 billion in capital and taken about $47 billion in total write-downs. As of last week, the market was undecided whether those problems would persist. Merrill Lynch "remains exposed to additional write-downs through its exposure to CDOs and to residential and commercial mortgages," wrote Standard & Poor's equity analyst Matthew Albrecht in a note Thursday. "But July actions to reduce CDO positions and shore up its capital base have improved its outlook, in our view." -- P.M., L.B. and G.W.

Dealwatch executive summary
The Date	The Action
9.15.08	BofA in $50B Merrill deal; see the advisers here; and what's to become of the target's stars? See conference call highlights and watch video.
9.12.08	Is a BofA-Merrill tie-up coming?
9.03.08	Merrill taps high-profile mortgage bankers.
8.15.08	Merrill stages hiring freeze.
8.05.08	Thain loses credibility, calls Merrill 'well capitalized.'
8.01.08	Norris on Thain.
7.31.08	The surreal crisis: Merrill, nutmegs and mark-to-market.
7.29.08	Capitulation? Why does Merrill lead? Merrill plans share sale amid write-downs.
7.17.08	Merrill will look for more cash after $4.9 billion loss.
6.2008	Is BofA's Countrywide deal a steal?
10.30.07	Stan O'Neal ousted.
Source: The Deal, press reports

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