Merrill Lynch being sold + Lehman Brothers filing for bankruptcy

[JeffreyLebowski]

Originally posted by: Capt Caveman

Originally posted by: TheoPetro
meh if were gonna bail out the "poor" home owner who was "taken advantage of" then we may as well bail out the banks too. After all many of them thought they were purchasing AAA rated paper. IMO if AIG gets bailed out too it just creates a HUGE moral hazard.

Well, we bail out on a regular basis all the folks that decide to live and rebuild in hurricane devastated/natural disaster prone areas.

We do? You mean they pay insurance premiums and insurance pays them. The federal gov doesn't just hand out money to people to rebuild. My GF's mom works for the arm of the gov that provides secure low interest loans to people that don't have insurance or couldn't get flood insurance. If you don't pay the fed back they take your property as it is the collateral.

 

[JeffreyLebowski]

hit reply instead of edit

 

[Capt Caveman]

Originally posted by: JeffreyLebowski

Originally posted by: Capt Caveman

Originally posted by: TheoPetro
meh if were gonna bail out the "poor" home owner who was "taken advantage of" then we may as well bail out the banks too. After all many of them thought they were purchasing AAA rated paper. IMO if AIG gets bailed out too it just creates a HUGE moral hazard.

Well, we bail out on a regular basis all the folks that decide to live and rebuild in hurricane devastated/natural disaster prone areas.

We do? You mean they pay insurance premiums and insurance pays them. The federal gov doesn't just hand out money to people to rebuild. My GF's mom works for the arm of the gov that provides secure low interest loans to people that don't have insurance or couldn't get floo insurance. If you don't pay the fed back they take your property as it is the collateral.

When an area is given a Federal Disaster Designation, a number of grants, relief aid, etc is provided including low-interest loans. But a lot of it does not have to be paid back.

I have friends who had their basement flooded. They did not have flood insurance but b/c their area was designated as a federal disaster, all they had to do was fill out a form to get several thousand dollars that they did not have to pay back.

 

[EKKC]

who here is going go buy some SKF?

 

[middlehead]

Originally posted by: Baked

Originally posted by: Tiamat

Originally posted by: Baked
BofA FTW!

too bad their customer services sucks a big one

User error. Never had a problem w/ them.

I've never had a problem with their customer service reps. Their policies in general however, completely douchetastic.

 

[sciencewhiz]

Originally posted by: OrByte
Now I am sure that the $50 bil that the FDIC has on hand to "insure" the nationals banks will go up, I am sure Congress will pour money into the fund.

But

$50 Bill vs $1 Trill ?? is that the type of money descrepency that the Fed is looking at right now? is there historical data to measure the amount of money that the Fed normally has to insure vs its capital on hand?

$50 bill vs $1 trill seems like huge gap to me.

5% sounds about right to me, from what I remember from economics class.

 

[Blackjack200]

Originally posted by: Lothar
I'm still wondering how exactly they were able to probe Merrill's books and come up with a $29/share decision in less than 48hrs.

All they had to do was wait a few days more and they'd be able to buy Merrill for $15/share rather than overpaying $29/share for it.
There's no need to act like an angel in preventing a financial collapse if you can pay pennies for it.

I expect a BAC dividend cut pretty soon. This merger will seriously dilute current BAC shareholders in the short term, but it will prove valuable since Merrill has one of the best brokerage in the industry.

What would probing the books do? Tell BofA how much Merrill paid for the assets? Everyone knows they're not worth that anyway. I heard that when BofA and Merrill were doing their due diligence (Merrill did due diligance as well as MER shareholders will be paid in BAC shares) Merrill's marks were actually more conservative than BofA's.

If they had waited a few more days Merrill may have gone bankrupt. The whole point of this transaction from BofA's perspective is to land Merrill's 16,000 brokers. If Merrill had gone bankrupt, (or allowed to twist in the wind much longer) those brokers would have left.

Merrill has the best brand on Wall Street, the best broker network, and outstanding senior management in their Wealth Management business. Short term BofA will struggle to deal with Merrill's balance sheet, but long term this could be a huge win.

 

[imported_Lothar]

Originally posted by: LegendKiller

Originally posted by: George P Burdell

Originally posted by: Mo0o
Speaking of all this, has anyone read the Vanity Fair article about the Bear Stearns collapse? It's a GREAT read and gave me a lot of insight into what really happened behind the scenes. From they way they presented the story, it wasn't really Bear's subprimes that killed them, it was the poor reputation after that loss plus rampant speculation of liquidity issues that scuttled them. Anyways, if you guys have some time to kill, I highly recommend it:

http://www.vanityfair.com/poli.../08/bear_stearns200808

Bookmarked for later

it is a very good article.

With LEH, it's pretty sad. The company could have survived, but Fuld is a prick. He tried to drive a hard deal when he was in the weak position, which is why the KDB backed out. If there's one thing for certain, he fucked up big time.

I have a good friend that has been there for 20 years, from a trader assistant to SVP generating tons of profit for the company. I am sure a huge portion of her comp was in LEH stock, probably with lockouts. She wasn't involved in the BS here. It's too bad.

Fuld had the typical hubris that any long-term CEO has: "I built this thing, and it's got more value than the marketplace understands."

At key junctures Fuld seems to have played a game of brinksmanship, refusing to accept offers that could have rescued the firm because they didn't reflect the value he saw in the bank.

As recently as August, Fuld may have had a chance to sell a 25 percent stake in Lehman for $4 billion to $6 billion to state-run Korea Development Bank, but by some accounts he balked, saying the offer was too low, the Wall Street Journal has reported.

Differences over price also thwarted talks to sell up to half of Lehman shares to China's CITIC Securities in August, the Financial Times reported.

So many opportunities to sell Lehman...Now, it's not worth a dime.

 

[imthebadguy]

tell me about it.....i work for merrill

 

[imported_Lothar]

Originally posted by: Blackjack200

Originally posted by: Lothar
I'm still wondering how exactly they were able to probe Merrill's books and come up with a $29/share decision in less than 48hrs.

All they had to do was wait a few days more and they'd be able to buy Merrill for $15/share rather than overpaying $29/share for it.
There's no need to act like an angel in preventing a financial collapse if you can pay pennies for it.

I expect a BAC dividend cut pretty soon. This merger will seriously dilute current BAC shareholders in the short term, but it will prove valuable since Merrill has one of the best brokerage in the industry.

What would probing the books do? Tell BofA how much Merrill paid for the assets? Everyone knows they're not worth that anyway. I heard that when BofA and Merrill were doing their due diligence (Merrill did due diligance as well as MER shareholders will be paid in BAC shares) Merrill's marks were actually more conservative than BofA's.

If they had waited a few more days Merrill may have gone bankrupt. The whole point of this transaction from BofA's perspective is to land Merrill's 16,000 brokers. If Merrill had gone bankrupt, (or allowed to twist in the wind much longer) those brokers would have left.

Merrill has the best brand on Wall Street, the best broker network, and outstanding senior management in their Wealth Management business. Short term BofA will struggle to deal with Merrill's balance sheet, but long term this could be a huge win.

That still doesn't explain why they paid a 70% premium to Friday's closing price.
They could have bid $20/share and still kept all the brokers.

 

[Blackjack200]

I don't know if that's true; a major component of Merrill's broker compensation is Merrill Lynch stock. If those brokers felt like BofA's offer was unfair, they could have left out of spite. This happens all the time with wealth management businesses are sold. In fact, any time a brokerage is sold, the affected brokers expect an incentive package from the buyer to entice them to stay. If they don't get it, they will leave and the buyer will have just paid millions, or billions, for fucking nothing. I guess BofA could have offered less money for the stock and just offered a sweet incentive deal for the brokers, but there are talented people in the home office too. Keep in mind that when you do a deal like this, you are purchasing talent.

I saw reports today that Merrill was in talks with two other companies, BofA was apparently scared that someone else would outbid them. I know that when the investment banks are falling like dominoes it's tempting to put them in the same boat, but Merrill is not the same as Lehman. It's wealth management business is the crown jewel of Wall Street. Merrill ate $45 billion in mortgage losses. It was able to do so largely because of investor and creditor confidence that the wealth management business would continue to be profitable and sustain the company. To a large extent, that panned out, investor confidence was just too badly shaken when Lehman failed.

Also, BofA will get a 49% stake in BlackRock. That alone will be worth $15 - $20 billion once the markets turn around (It's worth about $12.5 billion right now).

 

[imported_Lothar]

Originally posted by: Oyeve

Originally posted by: JimRaynor
shouldn't affect them at all.

I bet they will raise your APR on your BOA credit cards.

Why would anyone give a crap what the APR on a credit card is?

 

[imported_Lothar]

Originally posted by: ICRS
How is wells fargo looking?

Wells Fargo is very well capitalized.
Their CDS looks okay as well.

 

[imported_Lothar]

Originally posted by: Blackjack200
I don't know if that's true; a major component of Merrill's broker compensation is Merrill Lynch stock. If those brokers felt like BofA's offer was unfair, they could have left out of spite. This happens all the time with wealth management businesses are sold. In fact, any time a brokerage is sold, the affected brokers expect an incentive package from the buyer to entice them to stay. If they don't get it, they will leave and the buyer will have just paid millions, or billions, for fucking nothing. I guess BofA could have offered less money for the stock and just offered a sweet incentive deal for the brokers, but there are talented people in the home office too. Keep in mind that when you do a deal like this, you are purchasing talent.

I saw reports today that Merrill was in talks with two other companies, BofA was apparently scared that someone else would outbid them.[/b] I know that when the investment banks are falling like dominoes it's tempting to put them in the same boat, but Merrill is not the same as Lehman. It's wealth management business is the crown jewel of Wall Street. Merrill ate $45 billion in mortgage losses. It was able to do so largely because of investor and creditor confidence that the wealth management business would continue to be profitable and sustain the company. To a large extent, that panned out, investor confidence was just too badly shaken when Lehman failed.

Also, BofA will get a 49% stake in BlackRock. That alone will be worth $15 - $20 billion once the markets turn around (It's worth about $12.5 billion right now).

The part about them leaving out of spite for a low stock offer seems like speculation at best on your part. With BSC, the employees held 38% stock of the total company stock. That isn't the case with MER as they're not major shareholders there.
At the end of the day, BAC will still end up giving 15-30% of those brokers the pink slip. There are always job cuts during acquisitions. That's reality and it doesn't change.
When JPM acquired BSC, they didn't hire all their brokers. I read that they only hired ~30% of them. What did the remaining do? They either don't have jobs now(MOST of them) or the *few* that had management positions and decades of experience(ex: David Glass who went to BAC) went to other firms.

I have yet to hear or seen such report. Link to your reports?
Not many companies are capable of stomaching an entire acquisition of MER.
Still doesn't make sense. If you have competition in the bidding process, why would you want to show all your cards if you think you have the upper hand?
Think eBay. Bid $1/share(or 5% higher/share) than your competitor.

It's not about BAC buying MER for what they're worth.
My point is they could have paid 50% less than their current bid and still end up with the same result.
If BAC only wanted MER's wealth management division, then they shouldn't have bid for the entire company and allow another company or hedge fund to take on MER's toxic poison CDO balance sheet.

I'm not comparing MER to LEH. I have made no such comparison in this thread.