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Bank of America and Merrill Lynch: Another Fed Sponsored Shotgun Marriage

Companies / Credit Crisis 2008 Sep 15, 2008 - 06:44 AM GMT

By: Mike_Shedlock

Companies It's all over for Lehman. Action in the main poker room action has stopped. None of the players wants to bet a penny on the Lehman pot. Indeed, Lehman Prepare For Bankruptcy as Buyers Withdraw .

This is a realization the pot is worthless. Nonetheless, expect to hear clowns screaming about "naked shorts" wrecking Lehman just as they screamed the same nonsense about Bear Stearns.


Action has now shifted to side games as AIG Struggles To Stay Alive, Begs Fed For Cash .

In another side game at least as big as the main game, Bank of America Agrees to Buy Merrill Lynch for $44 Billion .
Bank of America has struck a $44 billion deal to buy Merrill Lynch, according to two people familiar with the negotiations, a merger that will unite the nation's largest consumer bank with one of its most celebrated investment banking firms.

Both boards have approved the deal and it is now being reviewed by lawyers, the sources said. Bank of America will pay about $29 for each share of Merrill Lynch stock. A formal announcement is expected tomorrow morning.

A shotgun Marriage?

I sense a shotgun wedding sponsored at gunpoint by the Fed.

Without this buyout announcement Merrill Lynch would have gotten absolutely crushed tomorrow. That is absolutely certain. The closing price of Merrill Lynch was $17.05 on Friday. Mother Merrill's market cap was roughly $26 billion.

Thus... Bank of America (BAC) agreed to pay $44 billion for a company that would have been worth $18 billion on Monday's open, assuming a $5 markdown on Monday to $12. Why?

No one had any cash to buy Merrill other than BAC so what's the rush?

Various swap-o-rama tables are now in full swing with everyone trying to figure out who is holding what and who the counter parties are, and just what anything is worth, if indeed anything is worth anything at all.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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