Bank of America Acquires Merrill Lynch (A)

Abstract

On December 22, 2008, Bank of America (BofA) chairman and CEO Ken Lewis convened a special board of directors meeting to review his company's pending acquisition of investment bank Merrill Lynch. Negotiations for the acquisition had begun a few months earlier, during the disastrous week in September in which Lehman Brothers declared bankruptcy. Initially both Merrill and BofA viewed their agreement favorably, but in the intervening months, as Merrill's anticipated losses ballooned and the government stepped in with such programs as the TARP, BofA found itself tied to a financial anchor with a hard-line from the government that prevented BofA from abandoning ship. This case provides background on the financial crisis and the chain of events between September and December of 2008 in which Merrill, BofA, and the government attempted to negotiate the acquisition. This case focuses class discussion on several decisions--whether BofA should have initially agreed to buy Merrill Lynch, whether it should have accepted capital contributions from the Treasury, and how it should have responded to the deterioration in Merrill Lynch's position in the first quarter.

Learning Objective: To understand how banks responded to the financial crisis, and evaluate the various forms of federal assistance offered to banks during the crisis.