Merrill Lynch was crippled by perilous real estate deals and wound up with inadequate capital to cover its losses. The firm had $52.2 billion in losses and writedowns related to subprime securities and its stock fell more than 80 percent from its $97.53 peak. In July, Merrill Lynch sold more than $30 billion in collateralized debt obligations (CDOs) for just 22 cents for each dollar.
According to reports, the deal will combine Merrill Lynch's 17,000 brokers with Bank of America's wealth advisors. The new brokerage will be called Merrill Lynch Wealth Management. After the announcement of the buyout, shares in Merrill Lynch soared to $21.85.
Merrill Lynch sought a buyout after exploring the impact a Lehman Brothers bankruptcy would have. The company decided that it needed to protect itself from further losses. Bank of America had been considering purchasing Lehman Brothers, but decided that Merrill Lynch was a better deal.
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This weekend saw the meltdown of at least three financial services companies, including Merrill Lynch, Lehman Brothers (which is now filing for bankruptcy) and AIG (which has now been permitted to loan itself money). Additionally, Fannie Mae and Freddie Mac were recently bailed out by a government takeover. All this news has investors understandably concerned about the investment industry. Although experts are telling investors in Merrill Lynch that there is nothing to worry about, the news this weekend has been unsettling, to say the least.