January 20, 2009
BofA's Deal for Merrill Awash with Questions
Bank of American closed its purchase of Merrill Lynch on January 1 of this year. BofA shareholders voted to ratify the deal on Dec. 5 of last year. We now know facts that we did not know at the closing and that the shareholders of BofA did not know when they voted to ratify the deal. At some time in early December, the CEO of Bank of America knew that Merrill's debts were worse than he had anticipated when he priced the deal. Paulson and Bernanke urged him to close anyway and, apparently, offered government support. Traders and shareholders knew none of this until mid-January. This is lawsuit heaven. The government will not get sued, of course, but Bank of America will -- for federal securities act violations and for breach of fiduciary duty. But the government's role will be an odd one; with government supporting confidentiality and the SEC floating around the lawsuits of lack of disclosure we will see some very fancy high stepping. This will take years to play out but it is well worth the watch. Once again Paulson comes up short in the crunch.
January 20, 2009 | Permalink
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After the Merrill deal, BOA received (and needed) a fresh $20B in bailout funds, in addition to their first distribution from TARP. But this time, there's another little [big] hook, similar to what we saw with the Chase/Bear Stearns bailout:
GOVERNMENT SHARES IN LOSSES:
The rescue package for Bank of America calls for the government to share in losses on $118 billion in residential and commercial mortgages, derivatives and corporate debt. The bank will absorb the first $10 billion of losses, the government the next $10 billion, and the government 90 percent of the rest. Ouch.
Didn't seem to help them in trading the following days after this was announced, as thier share price dropped 30%.
Posted by: Mike Rosemeyer | Jan 22, 2009 5:59:03 AM