Bank of America is to buy Merrill Lynch in an all-stock deal worth between $40 and $50 billion. Under terms of the transaction, Bank of America would exchange 0.8595 shares of its common stock for each Merrill Lynch common share. The deal is subject to approval by both companies' shareholders, though BAC expects the deal to be closed by the first quarter of 2009.
On September 5, 2008, Bank of America joined seven other major banks in agreeing to buy back auction-rate securities it sold to customers. The buybacks come amid allegations that the banks knowingly sold the securities to customers as safe despite knowing of difficulties in the market.
On July 21, Bank of America reported second quarter net income of $3.41 billion, down 47% from $5.76 billion in 2007. Revenue for the quarter was a record $20.6 billion. Analysts had been expecting a much sharper drop in profit.
BAC also reaffirmed there would be no dividend cut. There had been quite a bit of speculation as to a cut, so this solidified the short term yield picture and fueled stock gains.
Talks of a Bail Out for Freddie and Fannie first surface
On Tuesday, June 10, Bank of America announced its agreement to sell its prime brokerage unit to French bank BNP Paribas SA. The deal, which is reportedly valued at around $300 million, will give BNP Paribas a significant foothold in the U.S. prime brokerage market. Bank of America originally posted the unit for sale in January of 2008 but did not reach an agreement until June. The deal is scheduled to be completed in the second half of 2008.[1]
Bank of America and Countrywide Financial (CFC) fell on Friday amid renewed speculation that the buyout announced in January of 2008 might fall through. A Bank of America spokeswoman said that the deal was proceeding as planned and would close sometime in the third quarter of 2008.
On May 7, 2008, law firm Klayman & Toskes filed a lawsuit against Banc of America Investment Services, Inc., a subsidiary of Bank of America. The suit claimed that financial advisers had made investment recommendations without disclosing the full risks, resulting in clients losing millions of dollars.
On Monday, April 14, 2008, Wachovia Bank posted a net loss of over $2 billion for the first quarter of 2008, which drove shares of several finance firms. Bank of America's stock retreated on the bad news as investors feared similar results in its earnings release.
On Tuesday, January 22, Bank of America announced its fourth-quarter and full-year results from 2007. Though net income declined 29% from 2006 to $14.98 billion in 2007, the company's stock price rose on the release. According to Bank of America, tough market conditions in the third and fourth quarters depressed an otherwise profitable year.
BAC announces it will buy Countrywide, CFC, the largest mortgage company in the U.S. for $4 billion, or $6.90 per share. Countrywide has been hit hard by the subprime mortgage crisis and this is seen as bailout of CFC to prevent bankruptcy.
On November 13, Bank of America announced that it expected to absorb an additional $3 billion in losses related to its holdings of CDOs and other subprime-related investments in the fourth quarter of 2007. Despite this, investors remained confident about the firm's ability to manage the losses. Fitch Ratings maintained its rating, citing BofA's strong earnings, diversified operations, and substantial equity base as reasons why the firm can absorb the losses.
An analyst at CIBC downgraded Bank of America from "Sector Outperformer" to "Sector Performer" on concerns about the company's ability to maintain high sales growth. The analyst, Meredith Whitney, predicted sluggish 2007 sales growth and cut her estimates for earnings per share for 2008 and 2009. This news, combined with a similar downgrade of Citibank, resulted in a sharp drop in Bank of America's stock price from its closing price the day before.
With the shakiness in the subprime mortgage industry and a general tightening of the market for debt, Bank of America's earnings for the third quarter of 2007 were expected to decline from 2006 levels. The actual results, released on October 18th, reflected a larger loss than anticipated, with net income and earnings per share down 32% and 31%, respectively, from the same quarter in 2006. This was largely due to large markdowns on the value of debt investments and increased provisions for loan losses.
On October 15, a consortium of U.S. banks, including Bank of America, Citibank, and JP Morgan Chase, announced its plan to create an $80 billion fund to help maintain liquidity in the credit markets. The fund will buy assets from structured investment vehicles, or SIVs, which invest in short-term commerical debt and asset-backed securities. Though it could help stabilize the debt market, the establishment of such a fund signaled the severity of the credit crunch, causing further drops in investor confidence and stock prices.
A Milan judge has ordered Bank of America to stand trial for alleged market-rigging by some of its employees in connection with Italian dairy firm Parmalat's collapse. Furthermore, the Dutch Supreme Court said it will announce its ruling in the case involving ABN Amro Holding NV's planned sale of its US unit LaSalle to Bank of America on Friday, July 13. Many are skeptical that the ruling will fall in Bank of America Corp.'s favor.
The acquisition created U.S. Trust, Bank of America Private Wealth Management, which has nearly $265 billion in assets under management and more than $427 billion in total client assets.
Looking to further grow its mortgage business and expand its traditional retail banking operation, Bank of America Corp. is doing away with the collection of borrower, lender and third-party fees that typically add a few thousand dollars to the price of buying a home.
Reuters reported that Bank of America Corp. was fined $3 million by the NASD to settle charges it failed to follow rules designed to stop money laundering, in its handling of accounts held by a single family.
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