5:55 PM EDT: [T]he Federal Reserve has agreed to accept lower-quality assets in return for loans from the government. [?!] ... It was not clear whether the government would appoint a trustee to supervise Lehman's liquidation, or how big the financial backstop would be. Lehman's broker-deal subsidiaries would not be a part of the bankruptcy filing. Those entities must file under Chapter 7 rules, which are the procedures for liquidation, under the assumption that it is the best way to protect customers. The Securities Investor Protection Corporation would handle the liquidation of such brokerages, and bankruptcy lawyers say that customers are likely to receive their holdings back. ... Moreover, changes to the bankruptcy code mean that counterparties to Lehman's credit-default swaps can seize their collateral at any time, posing an enormous potential risk to the entire financial markets.
Lehman's broker-deal subsidiaries would not be a part of the bankruptcy filing. Those entities must file under Chapter 7 rules, which are the procedures for liquidation, under the assumption that it is the best way to protect customers. The Securities Investor Protection Corporation would handle the liquidation of such brokerages, and bankruptcy lawyers say that customers are likely to receive their holdings back. ... Moreover, changes to the bankruptcy code mean that counterparties to Lehman's credit-default swaps can seize their collateral at any time, posing an enormous potential risk to the entire financial markets.
Today's special "netting" session is ended. I'm assuming FRBNY (Geithner) --rather than "the government"-- will recommend a trustee, assigned to settle contracts languishing in LEH's bag. Diversity is the key to economic and political evolution.
That the board is meeting on a Sunday night means that after Lehman fails Merrill can't be far behind.
Also, wasn't BofA trying to buy Lehman last week? What are they playing at? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Does BofA hold put options or short positions on Merrill? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Although I suppose beyond a certain point the whole system falls apart, and BofA wouldn't survive that either, even after vampirising the investment houses.
Does anyone know what BofA's culture is like?
Maybe BofA is killing the broker dealers on purpose. If BofA pulls out of this deal, Merrill is toast, like Lehman was toast after BofA pulled out of the previous deal to buy Lehman.
BoA destroys Lehman AND gets Merrill Lynch, eliminating 2 competitors in one fell swoop.
Hmmmmm.... "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
A deal would be all the more dramatic because Merrill, upon the arrival of Chief Executive John Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg. That Merrill has opted to sell itself thus underscores the severity of crisis.
Then why would Merrill cut and run (apart from making a 10+% profit with the reported $29 per share offering)? This seems like awfully short term thinking.
For BoA, it seems CEO Kenneth Lewis just plain likes to acquire:
"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."
Both quotes taken from WSJ - "Bank of America Reaches Deal for Merrill" "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
Then why would Merrill cut and run (apart from making a 10+% profit with the reported $29 per share offering)?
A good post, thanks. I have no news sites from Poland in my favorites, nor any from the Batlic states, and only one in Kyiv. I need to work on that. "It Can't Be Just About Us"--Frank Schnittger, ETian Extraordinaire
Besides, "the market" let off BoA easily, when management dumped, refused to honor, Countrywide's liabilities in June [?]. ML may expect equally favorable market treatment of its CDOs, now its book is being trimmed by LEH's bankruptcy.
BAC closed at a "healthy" $33 on Friday and (Aug 8-K) profit --despite significant FRB borrowing.
I dunno. I'm inclined to see this scene as a mutually opportunistic share swap to please both firms' preferred creditors. I don't see upside otherwise. I'm not convinced ML is motivated to deal "simply" because of write-down anxiety ... Diversity is the key to economic and political evolution.
What's the benefit for BofA?
The benefit, dear TBG, is that BoA drives itself bankrupt and leaves me pissed off dealing with the FDIC. A kind of farewell "Fuck You" from my grand ol' bank. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
As I understand the deal is contingent on an analysis of Merrill's balance sheet. So if Merrill is an empty shell, BofA gets to walk away.
The plan seems to be that there's still some real value there, somewhere.
Also, big boss of BofA seems to enjoy shopping.
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(Yes, yes, they're not all bad, you know what I mean.) Peak oil is not an energy crisis. It is a liquid fuel crisis.
