Weekend Merger Struck With Bank of America

Bank of America struck a $50 billion deal yesterday to buy Merrill Lynch, a merger that will unite the nation's largest consumer bank with one of its most celebrated investment banking firms, according to sources familiar with the negotiations.

Both boards approved the deal and it was being reviewed by lawyers late last night, the sources said. Bank of America will pay about $29 for each share of Merrill Lynch stock, which closed at $17.05 on Friday. A formal announcement is expected this morning.

The acquisition came at the end of a historic weekend in New York. Senior federal officials and Wall Street executives cloistered themselves at the Federal Reserve Bank of New York and urgently discussed how to minimize the damage to global financial markets from the looming bankruptcy of investment bank Lehman Brothers.

Merrill Lynch's chief executive, John Thain, had been among the Wall Street chieftains who had been summoned to the extraordinary session to help fashion a rescue for Lehman. But as the weekend went on, it became increasingly clear that Merrill Lynch could be badly injured by a Lehman bankruptcy and needed to find its own way to ride out the gathering storm.

Initially, Bank of America had been a leading suitor for Lehman, but backed out after federal regulators refused to put government money behind the deal.

Merrill Lynch is in better shape financially than Lehman, and Bank of America views the company as a better fit.

Merrill Lynch's crown jewel is the nation's largest retail brokerage. Bank of America views that business as a good addition to its own consumer financial businesses. The company already was the nation's largest retail bank, credit card company and mortgage lender. Now it will become the nation's largest retail brokerage, too.

Arguably no other American company sits closer to the heart of the consumer economy.

For Bank of America, which is based in Charlotte, Merrill Lynch also offers the prestige of owning one of the nation's great investment banks. Bank of America has struggled to build its own operation. Chief executive Ken Lewis declared last fall that he had "all the fun I can stand," as he announced that the company would slow its efforts to grow its own investment bank.

It now appears the firm never relinquished the underlying ambition, and Bank of America will now be a major player on Wall Street.

Bank of America is in a position to buy Merrill Lynch because until now the company has been a bit player on Wall Street. Instead it has set its sights on consumers, running the nation's largest retail bank, a business that remains highly profitable. That gave it the cash to go shopping for an investment bank, continuing a long tradition of opportunistic acquisitions.

Merrill Lynch was one of the largest producers and sellers of complex securities at the heart of the economic crisis. Merrill Lynch sold collateralized debt obligations, which are securities that package a large number of mortgage bonds and other debt, to investors around the world.