Bank of America agrees to pay $50 billion for Merrill Lynch

NEW YORK — Bank of America today began adding another slice to its growing financial services empire, agreed to buy Merrill Lynch in a $50 billion deal that would create a bank that offers everything from fixed-income trading to credit card lending.

It would rival Citigroup, the biggest U.S. bank in terms of assets.

Bank of America said it would acquire Merrill Lynch in an all-stock transaction that should lift the uncertainty shrouding the investment bank since the start of the credit crisis over a year ago.

Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest and most widely recognized brokerage.

The acquisition of Merrill "creates the premier financial company in the world," Bank of America Chairman and Chief Executive Officer Ken Lewis said during a joint news conference with Merrill's chief executive, John Thain. "It was an opportunity of a lifetime," Lewis added.

Under terms of the transaction, which came together in less than 48 hours, Bank of America would exchange 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

The deal values Merrill at $29 a share based on Bank of America's Friday closing price of $33.74. That represents a 70 percent premium over Merrill's Friday closing price of $17.05, but well below what the brokerage firm was worth at its peak in early 2007, when its shares traded above $98.

Merrill's shares ended up 1 cent to $17.06, while shares of Bank of America dropped $7.19, or 21.3 percent, to $26.55.

Merrill's stock had languished further last week as ailing Lehman Brothers Holdings raced to find to a buyer. Early today, Lehman, the No. 4 investment bank in the U.S., said it was filing for Chapter 11 bankruptcy.

"First, obviously Merrill is much, much more than an investment bank. It is the best wealth management company in the world," Lewis said during a conference call. "The frustration, I think, is we were in some ways in no man's land. It has been frustrating, frankly and we've had some stop and gos. This solves that, and creates the company that instantly would have taken decades to build. We would have been frustrated for quite some time, and this just changes that. I like it again."

Bank of America said its buyout is expected to close in the first quarter of 2009. The deal has been approved by directors of both companies and is subject to shareholder votes at both companies and standard regulatory approvals, the bank said.

Under the agreement, three directors of Merrill Lynch will join the Bank of America board of directors.

"Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world with the combination of these two firms," Thain said in the statement.

Strategically, most industry analysts are saying it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.

Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.

And the deal does not come without risks to Bank of America. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses, and its stock has been sliding.

Thain and Lewis said on the call that both companies have "nominal" exposure to Lehman Brothers.

Officials from the government and various banks met this weekend to discuss what to do about Lehman Brothers.

Thain, who attended the meetings that began Friday, said that during the meeting it "became clear" that Merrill should look at its options because funding for stand-alone investment banks was likely to come under pressure as a result of the Lehman failure.

Thain initiated the conversation with Lewis on Saturday morning and the deal was struck by Sunday night. Merrill did not reach out to any other companies to discuss a potential deal, Thain added.

Lewis declined to comment on Bank of America's potential interest in Lehman before it ultimately filed for bankruptcy.

The Bank of America-Merrill deal differs from JPMorgan Chase & Co.'s buyout in March of Bear Stearns in that Bear Stearns was sold at a steep discount and with financial backing from the Fed. While Merrill Lynch is burdened with soured real estate investments, its financial position is stronger than Bear Stearns' was.

AP business writers Joe Bel Bruno and Stephen Bernard contributed to this report.