According to the Wall Street Journal, Bank of America has agreed to buy Merril Lynch for 44 billion dollars. Is it just me or does absolutely none of this financial mess make any sense. First Bear Stearns gets a bailout of sorts and gets folded into JP Morgan Chase, then Lehman Bros. seems to be on the brink and somehow Bank of America comes out purchasing Merril Lynch at $29 a share or 44 BILLION. That is quite a hefty 70% premium over the $17.05 per share Merril was trading at the market close on Friday, Sept 12th.
At least it is not our tax money bailing out Merril but we still have to see what happens to Lehman Bros. on Monday. What happens if they crash and burn? Who knows, have we ever seen anything that big crash before? Looking further down the road, what happens when we have 2 global financial firms (Bank of America and JP Morgan Chase) with such a huge concentration of weath and financial power over the financial markets? Is there any way this can be a good thing over the long term?
It also begs the question of the stability of BAC. They’ve bought a ton of stuff over the recent months including Countrywide and now Merril. How much toxic shit are each of those two on the hook for that BAC will now be on the hook for? Better hope it is not to much because it seems like BAC is going to be to big to stop from failing if all that stuff blows up. If Merril wanted to sell before they went the way of Bear & Lehman, then why the hell would BAC want to pony up a 70% premium for something that might be selling for chump change a few months down the road?
This isn’t my area of expertise by any strenth of the imagination but it seems like the way things are going, the bubble is getting bigger and bigger and bigger and more and more stuff is getting pushed under the rug. We still have to face the biggest wave yet of Alt-A and Option Arm resets that will probably come crashing down as the “prime” borrowers” discover they can’t pay. See the chart below from Credit Suisse that shows the upcoming round of mortgage resets.
Monday will be another wild ride on Wall Street as the Bank of America acquisition of Merril Lynch gets digested by the market. Is it good or bad news? Who knows? The market has been so crazy lately as the financial system crumbles it is anyones guess what will happen.