Bank of America Headed for Lawsuit Heaven

Bank of America Headed for Lawsuit Heaven

It could be that Bank of America is headed for lawsuit heaven. A deal constructed during the beginning of December was initially refused and then Henry Paulsen returned to the table in mid-December to smooth the deal over.

In the beginning of January, shareholders voted to ratify the deal and Bank of America bought Merrill Lynch. Henry Paulson, US Secretary of Treasury and Ben Bernanke, Chairman of the Federal Reserve urged Bank of America to close the deal.

The deal shows how the credit crisis has created opportunities for financially sound buyers. At $50 billion, Merrill is being sold at about two-thirds of its value of one year ago and half its all-time peak value of early 2007.

The deal values Merrill at $29 a share. Merrill's shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman's looming demise.

Purchasing Merrill comes with higher risks than anticipated. Merrill had the highest ratio of "problem assets" subject to write-downs to capital of the top three independent securities firms, according to Fox-Pitt, Kelton. Analysts were already betting it would have to write down much more than predicted

As recent as last Friday, shareholders found out that the deal was much less solvent then they were originally informed. The government supported the confidentiality and kept the SEC in the dark.