Bank of America Wins at Dominoes

Barclays and Bank of America (BAC) have apparently given up on Lehman Brothers (LEH), which is going to file for bankruptcy protection.  Instead, Bank of America’s purchasing Merrill Lynch (MER).  How’s that for plot thickening? 

Merrill’s reportedly asking for $29 per share, according to the Wall Street Journal. The deal would be perfect for Merrill, which would see its shares melt away once Lehman bit the dust.

This is crazy, but it could be the solution Wall Street’s sought since the beginning of the year. Consolidation is always the final act in this kind of tragedy. The good news: If Bank of America is successful in acquiring Merrill, we’ll have taken a giant step toward the beginning, not the end.  It could mean resolution - and there would even be a slim chance Lehman could avoid bankruptcy, since a would-be buyer could be seduced out of the woodwork. 

The deal would be a great fit, borrowing from 2 parts of the Bank of America legacy. 

The first part begins in 1904, with the opening of the Bank of Italy in San Francisco by Amadeo Giannini. In 1906, when San Francisco was hit by its infamous earthquake, Giannini rushed down to retrieve all the banks funds.  Moreover, he began making loans when other banks were still stunned or in massive disarray.

Later, through a series of mergers, the Bank of Italy became BankAmerica.  Flash forward to another name in banking lore: Hugh McColl began a series of acquisitions that would take a small North Carolina bank to the top of the world. In 1997, Nations Bank merged with BankAmerica after the latter made a couple of significant missteps, including a $1.4 billion loan to DE Shaw that was almost wiped out.  The companies emerged as the renamed Bank of America.

This deal would be part Giannini the opportunist, and part McColl the strategist: Capitalizing on the rubble of disaster, on the one hand, and taking advantage of turmoil and competitors’ misfortune to take the industry by storm, on the other.

I've talked before about the deus ex machina - the one that appears in the final scene of a play and improbably saves the day against all odds. The deal that could save Wall Street is being made by ghosts from Charlotte and San Francisco .  It may be ugly, but it’s part of the eventual healing process.

Of course, with any sort of birth, there has to be death – in this case, it could be Lehman.  I felt the company should have cut the deal with Korea Development Bank or any other would-be suitor, and I’m sure when the tell-all book comes out, we’ll see where there was a window of opportunity. 

American International Group (AIG) could also be a casualty.  Wouldn’t it be ironic if Hank Greenberg -- a man I think shares some of McColl’s and Giannini’s qualities -- comes in at the last minute to reclaim the firm. Either way, this has gone on for far too long; now, the final curtain is coming down.