Bank of America and Merrill Lynch
Symptomatic or not of the turmoil in the U.S. financial markets, Bank of America’s online service was down yesterday. It probably had nothing to do with the bank’s takeover of Merrill Lynch as some speculated. It may just be that a large number of ordinary citizens are becoming increasingly worried about the state of the banking system. And wanting to reassure themselves that their accounts at BofA were still intact, they simply overwhelmed the bank’s servers.
What is always a challenge is assimilating two dissimilar cultures into a single integrated firm. This is the real challenge facing Bank of America in its acquisition of Merrill Lynch. How will the relatively risk-averse workhorse bridle the race horse with an appetite for risk?
A brokerage is built on the tacit knowledge rented from its employees and the codified knowledge stored in computer algorithms - there are scarcely any tangible assets. So what exactly is the bank purchasing for $50 billion? There is a real probability that a significant number of the 16 or so thousand Merrill Lynch financial advisers will simply bolt for greener pastures. It appears that the market also has some trepidation concerning the deal as investors yesterday bid down the price of the stock below the $29 per share at which BofA had valued it.
Procerity’s Prognosis: The Merrill Lynch acquisition will look overpriced a year from now.