Merrill Lynch, Lehman News Rocks Banking Industry

The banking industry withstood a jarring one-two punch over the weekend with distressing news about two of Wall Street's giants:
Bank of America, one of the world's largest banks, will become even bigger, acquiring Merrill Lynch & Co, in a $50 billion deal to create a global financial services company;
Lehman Brothers has filed for bankruptcy after failed acquisition talks with Bank of America and Barclays.

The venerated 158-year-old Lehman Brothers saw its stock prices plummet last week after news that it was seeking a buyer. Bank of America and nine other global banks have said they will make $70 billion in lending available to the firm. The other banks -- Barclays, Citigroup, Morgan Stanley, Credit Suisse Group, Deutsche Bank, Goldman Sachs Group, JP Morgan Chase, UBS, and Merrill Lynch -- have pledged to put $7 billion into the loan pool that could be made available to any of them, adding that other banks may join and expand this pool.

The combined Bank of America and Merrill Lynch company would have leading spots in retail brokerage and wealth management. With the addition of Merrill Lynch's more than 16,000 financial advisers, Bank of America will become the largest brokerage in the world, with more than 20,000 advisers and $2.5 trillion in client assets.

The combination brings global scale in investment management, including an approximately 50 percent ownership in BlackRock, which has $1.4 trillion in assets under management. BofA has $589 billion in assets under management. The buyout is anticipated to be completed by the end of the first quarter 2009.

Beyond Merrill and Lehman, American International Group Inc. (AIG), the world's largest insurance company, is seeking emergency funding to bolster its sagging finances.

What does this mean to the rest of the industry -- the other 97 percent of financial institutions coming after last week's news of the Freddie Mac and Fannie Mae takeover by federal regulators ( See related story: Subprime Fallout: 11th Bank Closed, Feds Take Over Fannie Mae and Freddie Mac)?

Stay tuned to and for further news and analysis of this dramatic series of developments - and what they mean to your institution and its customers.

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