CHARLOTTE, N.C. – Bank of America Corp. (NYSE: BAC) has completed its $33 billion acquisition of New York-based Merrill Lynch & Co. Inc. (NYSE: MER), the company said in a New Year’s Day announcement.
The deal makes Bank of America the nation’s largest financial institution, with assets of about $2.7 trillion. It also ends 95 years of independence for Merrill Lynch, which was founded by Charles E. Merrill in January 1914 and grew into the world’s largest brokerage, with a staff of 17,000 financial advisers.
The stock-swap transaction was valued at $50 billion when it was announced on Sept. 15. Although its value has dwindled as BofA’s share price has fallen, London law firm Linklaters Inc. still ranked the deal among the largest M&A agreements of 2008, according to Bloomberg News. Bank of America intends to issue 1.71 billion common shares, worth $24.1 billion at the current price, and replace Merrill’s preferred shares with 359,000 new Bank of America preferred shares, the company said in an Oct. 29 regulatory filing. Meanwhile, Scana Corp. – South Carolina’s biggest utility owner – has been selected by Standard & Poor’s to replace Merrill Lynch in the S&P 500 Index.
The combined institution will be led by Bof A CEO Kenneth Lewis, 61, while Merrill CEO John Thain, 53, will stay on as president of investment banking, trading and brokerage, Bloomberg News reported.
“We created this new organization because we believe that wealth management and corporate and investment banking represent significant growth opportunities, especially when combined with our leading capabilities in consumer and commercial banking,” Lewis said. “We are now uniquely positioned to win market share and expand our leadership position in markets around the world,” he added.
BofA also is seeking to achieve $7 billion in pre-tax savings by 2012. That total includes planned savings from the elimination of up to 35,000 jobs over the next three years, as the company copes with the weak economy and seeks to eliminate redundancies created by the Merrill acquisition. (READ MORE) Before the merger, Merrill Lynch had about 60,900 employees and Bank of America about 247,000, giving them a combined staff of roughly 307,900.
“The deal’s strategic and long-term benefits … offset shorter-term challenges,” Fitch Ratings said in a statement today. “Still, the combined entity faces a number of challenges. Integration risk is significant, due to MER’s size and complexity as well as the cultural differences between a commercial bank and an investment bank,” the agency said. Fitch affirmed its ratings for Bank of America debt – keeping its issuer default rating for BofA long-term debt at “AA-” and its short-term IDR at “F1+” – and removed Merrill’s long-term debt from “rating watch evolving.”
The completion of another major banking deal was also announced yesterday:
The $12.7 billion acquisition of Charlotte, N.C.-based Wachovia Corp. (NYSE: WB) by San Francisco-based Wells Fargo & Co. (NYSE: WFC) – a deal ranked by Linklaters as the 16th largest of 2008 – closed late on New Year’s Eve, nine days after its approval by Wachovia shareholders, the companies said in their joint statement.
The deal gives Wells Fargo total assets of $1.4 trillion and a staff of 276,000, the company said. It also gives the California-based bankthe nation’s largest branch network, with 6,650 offices in 39 states, including Rhode Island; makes it the nation’s second-largest bank in terms of deposits; and gives it the third-largest U.S. retail brokerage, with nearly 22,000 brokers, according to Bloomberg News. It was announced in October after Wells Fargo edged out rival bidder Citigroup Inc. (NYSE: C). (READ MORE)
Wells Fargo has said it plans to trim combined expenses by $5 billion per year as it seeks synergies after the merger.
“When the dust settles, they’re going to have a pretty powerful franchise,” said Joseph Morford, an analyst at RBC Capital Markets in San Francisco, told Bloomberg News. “There’s a tremendous opportunity.”
Fitch Ratings appeared to agree. “The transaction transforms WFC from a prominent western U.S. banking company to a dominant, national banking company with strong deposit market share and meaningful household penetration throughout its 39-state footprint,” the firm’s New York office said in a statement.
The agency today affirmed its “AA” issuer default rating for Wells Fargo and assigned a “stable” ratings outlook to the bank and its subsidiaries.
To learn more about Bank of America Corp. (NYSE: BAC), visit www.BankofAmerica.com.
For more information about Wells Fargo & Co. (NYSE: WFC), visit www.wellsfargo.com.
