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Acquisition of Merrill Lynch by Bank of America

Acquisition of Merrill Lynch by Bank of America. Investment Banks vs. Commercial Banks. What is an Investment Bank?. An investment bank: aids a company in acquiring funds offers advice on company transactions, such as mergers and acquisitions

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Acquisition of Merrill Lynch by Bank of America

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  1. Acquisition of Merrill Lynch by Bank of America Investment Banks vs. Commercial Banks

  2. What is an Investment Bank? An investment bank: • aids a company in acquiring funds • offers advice on company transactions, such as mergers and acquisitions • generates funds for a company by selling stock to public shareholders or by seeking out venture capital or private equity in exchange for stake in the company

  3. What do Investment Bankers do? Investment Bankers: • are real-estate agents for companies • connect buyers and sellers of companies to create deals “We don’t create anything and we don’t buy anything. We just sell things that aren’t ours to begin with.” -Investment Banker from Merger Inquisitions

  4. What is a Commercial Bank? A commercial bank: • lends money to customers • accepts deposits to personal and corporate accounts • finances loans for individuals and businesses

  5. Typical Stereotypes Investment Banker Commercial Banker

  6. Introducing Merrill Lynch • Founded in 1914 by Charles Merrill and Edmund Lynch • Made several successful investments early on and quickly focused on investment banking • Was the first firm on Wall Street to publish an annual fiscal report (1941) • When Lynch died in 1952, the company officially changed its name to Merrill Lynch and Co. • The company continued to build its brokerage network and eventually became known as the “thundering herd” • The company went public in 1971

  7. What Ever Happened to Merrill Lynch? • In November 2007, CEO Stanley O’Neal resigned after the company posted a $2.24 Billion loss from subprime mortgages • In December, John Thain, then CEO of the NYSE, became the new CEO of Merrill Lynch • Later that month, the company sold its commercial finance division to General Electric in an effort to raise capital • In July 2008, Thain announced a $4.9 Billion loss for the fourth quarter • In 12 months, the company lost $19.2 Billion, equivalent to a loss of $52 Million/day

  8. In August, the company became embroiled in a series of lawsuits regarding misrepresentation of risk on auction rate securities • On September 5th, Goldman Sachs downgraded the company to a “sell” and, Bloomberg revealed that the company had lost $51.8 Billion as a result of bad mortgage investments • On September 14th, Bank of American purchased Merrill Lynch for $50 Billion in stocks, at $29/share- a 61% drop from 12 months prior • Merrill Lynch had over $1.02 Trillion in assets and over 60,000 employees worldwide

  9. Introducing the Bank of America • Began as the Bank of Italy in 1904 (San Francisco) • Merged with Bank of America (Los Angeles) in 1929 and changed its name to BankAmerica • Introduced the BankAmericard (credit card) in 1958 which eventually changed its name to VISA in 1975 • BankAmerica expanded outside of California for the first time with acquisition of Seafirst Corp. (Seattle, Washington) in 1983 • Was the largest U.S. bank in terms of deposits until 1997 when it fell behind Nations Bank • Nations Bank was founded in Charlotte NC in 1874, first known as North Carolina National Bank • Nations Bank merged with the San Francisco based BankAmerica in 1998 to form what is known today as Bank of America • Headquarters were relocated to Charlotte in the $64.8 billion deal • Still operates under Bank of Italy’s 1927 Federal Charter

  10. Bank of America’s Recent Acquisitions • 2004: National Processing Company (Kentucky) $1.4 billion • 2004: FleetBoston Financial (founded in 1784) $47 billion • 2006: MBNA (credit card giant) $35 billion • 2007: United States Trust Company (from Charles Schwab Corp.) $3.3 billion • 2007: ABN AMRO North America LaSalle Bank Corp. & LaSalle Corporate Finance from ABN AMRO $21 billion • 2008: Countrywide Financial (mortgages) $4.1 billion • September 14, 2008: announced they would purchase Merrill Lynch & Co. for $50 billion

  11. Bank of America + Merrill Lynch = ? • With acquisition of Merrill Lynch & Co. , Bank of America is currently the largest financial services company in the world • Has global headquarters in New York, London, Singapore, and Hong Kong • Part of the Global ATM Alliance • Examples of Services: checking, savings, credit cards, mortgages, home equity, auto loans, personal loans, IRAs (individual retirement account), investment services, mutual funds, insurance • Kenneth D. Lewis is current CEO • 207,000 employees • Market Cap: $170.9 billion

  12. The Pros of the Acquisition

  13. The Cons of the “Merger”

  14. Food 4 Thought • “Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,” said Bank of America Chairman and CEO Ken Lewis. • “I believe that this will become the leading financial institution in the world,” said Merrill Lynch Chairman and CEO John Thain.

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