| Page 2 of 2 < |
Weekend Merger Struck With Bank of America
|
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
But Merrill and other Wall Street banks created many more of these complex securities than they could sell. As mortgage defaults started to rise, the value of the CDOs plummeted, forcing Merrill to write down their value. The mounting losses threatened Merrill's survival.
Merrill's shares dropped 36 percent last week, reducing its market value by $15 billion, to $26 billion.
Bank of America was one of the few bidders to show up at what turned out to be a historic fire sale. The company initially sought direct government support if it were to buy Lehman, but instead chose to buy Merrill Lynch. Sources familiar with the company's thinking compared the choice to fighting a fire. Executives felt that Merrill Lynch could be saved, but Lehman was lost already.
Bank of America, by contrast, remains relatively strong because its core banking business is healthy.
During the marathon New York meetings, federal regulators also assisted another one of the nation's biggest financial institutions, American International Group, the largest insurer in the country. AIG had too been battered by the mortgage meltdown.
Leaders of AIG were scrambling to pull together a sweeping restructuring plan to save their firm, said sources who spoke on condition of anonymity because of the fluid nature of the unfolding events.
The plan is likely going to include selling subsidiaries to raise cash, according to sources familiar with the restructuring.
AIG sells a type of insurance known as credit default swaps to cover losses on investments in certain kinds of securities. AIG made a big business of selling these swaps to cover losses in securities backed by mortgages.
As the mortgage market has melted down, AIG has been on the line to cover more of the losses, eating away at the firm's capital. Over the past nine months, AIG has posted $18.5 billion in losses.
Last week, its shares fell sharply on fears that it would have to raise tens of billions of dollars more capital to offset losses. The company's shares fell 31 percent alone on Friday.
After the market closed Friday, Standard & Poor's warned that it might lower its ratings on AIG's debt. S&P ratings are used by investors around the world to judge the safety of certain kinds of debt.
Lowering the rating would probably force AIG to pay more for loans and could force the company to come up with more collateral to back some of its complex insurance policies.
Staff writer David Cho contributed to this report.
