Bank of America CEO Kenneth Lewis has revealed that the bank bought Merrill Lynch despite feelings of buyer's remorse and serious misgivings about their offer to purchase the trouble investment bank in December. Both analysts at B of A and at Merrill Lynch underestimated that magnitude of the losses to Merrill's portfolio of loans. (Does this portend something for the future, I wonder?)
The U.S. government promised to provide additional funding to B of A because they were worried about the systemic risk to banking system viability if the deal fell through. Bank of America is the largest U.S. bank by assets, so it is a bellweather for the industry. Bank of American has also slashed its dividend to a token $.01. From Bloomberg:
Here is the full story.The government said earlier today it will invest $20 billion in Bank of America and guarantee $118 billion of assets to help the company absorb Merrill and prevent the financial crisis from deepening. The agreement is part of a commitment to “support financial-market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement shortly after midnight in Washington.
