DONE DEAL! BofA buys Merrill

Interesting...

this guy on CNBC says all the IB should start looking for merger partners, even Goldman, MS, JPM...as they can't survive on their own

this is fucking insane! what a bad year to graduate..and just overall...seems like IBanking is fucked for a decade

WOW......talk about a FLOOD of people in the job market. All the Lehman Brothers people who are now unemployed and the thousands of Merrill Lynch employees that are going to get fired.

What a fucking day.....................

We are witnessing before our eyes the beginning of the end for the independent broker-dealer model on Wall Street.

Not JPM. You are dead wrong about them. Try to think things through, honestly. The pure-plays are at risk. MS / ML / GS / LEH.

Can't help thinking these guys are going to get hammered tomorrow.

You've got to wonder how close to the same brink these two really are.

Someone once told me the day GS fails is the day US economy will be over and done. Well, I won't be surprised if GS and MS go out in the next few weeks. Wonder how much longer the US economy can avoid a depression...

how about the investment bank/wealth mgmt model like the one used by CS and UBS?

Goldman Sachs won't go bankrupt regardless of what some people believe. The Goldman Sachs name is too valuable, Goldman Sachs alumni are too powerful, and Goldman's clients and the general public have too much respect for the firm for it to ever go bankrupt or be sold.

If Goldman were to go bankrupt the U.S. economy would be wiped out. The financial markets would stop functioning and the world would come to an abrupt end.

here's a quote that I found really strange in that article:

Is that all there is holding up financial institutions? Frickin consumer deposits???? I don't analyze financial companies for a living - but can someone with knowledge weigh in here? Is this just dumb business journalism? Or has it really come to this?

The IBs are just too heavily levered - e.g. GS and MS levered at 8x and 12x common equity respectively. At such high leverage levels, if their level 1, 2, or 3 assets (RE, CDOs, CLOs, and other derivatives) drop in value in any given quarter they'll be forced to write down the value of these assets and this would drain SHs equity deeming these entities practically insolvent. If MS or GS have material exposure to any real estate - commercial or residential or their derivatives - they'll have to further write down asset values pushing them more and more towards insolvency and potential ratings downgrades. This is the worst case scenario facing any pure play IB and this is essentially what happened to Bear and in a sense what is happening to LEH.

The commercial banks don't face this problem because (1) they can account for these assets at cost w/o marking to market as is the case with IBs and (2) they receive a steady flow of cash from consumer and corporate deposits worldwide so they have a cushion of cash before hitting the equity paper. Plus, as a commercial bank they have access to the Fed as lender of last resort so their cost of funding (and risk) is lower due to diversification of equity sources. On the other hand, the IBs must constantly issue short term debt to refinance maturing short and long term notes, and when these funding sources dry up they basically can't refinance maturing paper and a chapter 11 is inevitable.

So stable depositor bases are pure cash in SH equity and provide a much needed cushion to absorb losses. The only risks commercial banks face is in ensuring that their net interest margins remain positive (short term rates must be lower than longer rates for banks to clear a profit on consumer loans) and that their provisions for losses and bad loan reserves are properly managed which is in turn dependent on their loan underwriting standards - stringent credit checks, credit history, collateral standards, equity cushions, and other good faith lending practices.

And ....I'm not saying that GS and MS will fail, they just have a much higher risk profile compared to the banks. Glass Steagal will be well in effect as we see more IB - CB mergers ahead. It's about perceived risk and liquidity - not brand name, or how prestigious you are. LEH, BS, ML were all solid brands, but suffered due to excessive leverage, counterparty and liquidity risk, and a basic halt in the short-term credit markets that they all live by. Same thing with the auction rate securities... but that's a whole different story. MS and GS will survive but would have to reconsider their overall business model and diversify their funding sources. One of these firms may actually buy out a commercial bank within the next 5 - 10 years if not sooner.

Hope that helps.

I was talking to one of my friends and he bet money that we will see either a GS-Wachovia or MS-Wachovia merger

This would have been sacrilegious 12 hours ago but the financial world has changed since then.

Thanks for the explanation thadonmega; interesting to see how those with a strong commercial bank (BofA, JPM, Citi) are fairing the best so far compared to the I-bank only models of LEH, ML, and BSC

how to the European bank models (UBS, CS) fare?

I'm shocked to see this happen and somewhat saddened. I did my analyst program years ago and wouldn't have imagined this would have ever occurred. LEH was evident but ML not. ML has a great group of talented folks who don't belong with the BofA crowd (different cultures), but all to their best.

Who were the advisors on this BofA/Merrill deal?

From mergermarket it just seems to be
- Banc of America Securities
- Fox-Pitt Kelton Cochran Caronia Waller
- J.C Flowers & Co LLC

Good catch if it is just these guys... there gonna shoot up into the Thomson Reuters M&A Advisory Tables with this deal!!

PS I thought JC FLowers was just a private equity firm..

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"The future belongs to those who prepare for it today" - Malcolm X