A Play for Wall Street

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Wall Street in Turmoil

Global stocks have experienced wild fluctuations this week in the wake of the U.S. government's seizure of insurance giant American International Group, the failure of Lehman Brothers, the disappearance of Merrill Lynch as an independent company and reports the U.S. government will set up a government entity to take on bad debts from financial institutions.

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Then he continued the expansion, taking the company beyond the Sun Belt. In 2004, he paid $47 billion for the largest bank in New England, FleetBoston Financial. He then expanded on Fleet's modest footprint in New York City. Last year, he paid $21 billion for LaSalle Bank of Chicago, giving Bank of America a presence in each of the nation's 10 largest metropolitan areas.

The initial goal of the expansion was to insulate the company against geographic economic downturns. But in the long run, the most important consequence was that Bank of America created an unparalleled system for sucking up deposits from every corner of the country.

In recent years, that deposit base has put Bank of America in the position of a power company that doesn't have enough customers for its electricity. The bank needed more borrowers. So it bought MBNA to become the nation's largest credit card lender. It bought Countrywide Financial, another firm enfeebled by the credit crisis, to become the nation's largest mortgage lender. And now it has agreed to buy Merrill Lynch in the hope of selling loans to its brokerage customers.

This deal also would give Bank of America a better balance of revenue sources. Merrill Lynch makes much of its money from fees charged to people for whom it manages funds and to corporations for whom its investment bank raises money. Bank of America's revenue is still tilted toward its lending business.

The Merrill Lynch purchase has all the hallmarks of a Ken Lewis deal. The target dominates its niche. When it stumbles, Bank of America moves fast and decisively, closing the deal in a weekend. Finally, the purchase is certain to cost the bank some money in the short term, but there is a good chance that it will be hugely profitable in a few years.

"Ken Lewis is a strategic thinker," said Steve Bartlett, president of the Financial Services Roundtable. Lewis is a member of the group. "He's always thinking two to five years in the future. If this were about next week, he perhaps would not have done it."

The bank's share price fell 21 percent yesterday to close at 26.55 in trading on the New York Stock Exchange.

As is often the case with Lewis's deals, some financial analysts have said Bank of America is paying too much. They suggest that Merrill Lynch could have been forced to sell for a lower price. But Bank of America has rarely pushed to close deals at the lowest possible price. Instead, it makes money in the aftermath. The bank is expert at cutting costs, slicing at acquisitions until they match Bank of America's lean infrastructure. It is also very good at increasing revenue.

In this case, as in past deals, Lewis will try to sell Merrill Lynch's products and financial services to Bank of America's vast network of existing customers. And vice versa. Lewis, asked about retaining Merrill Lynch's "thundering herd" of financial advisers, said he could simply promise he would be sending them a lot of new customers.

The company's plans on Wall Street are less clear. Bank of America has failed in past attempts, partly because investment banks rely on highly paid superstars, while Bank of America's culture frowns on the very notion of individual responsibility for successes. The company has been known to tell reporters that it is not possible to identify a person responsible for a new product or idea and certainly not possible to interview them.

Lewis recounted the makings of the deal in his usual laconic style on CNBC yesterday. He said he had been contacted by John A. Thain, the chief executive of Merrill Lynch.

"He called early Saturday and said, 'Do you think it might be time to talk?'

"And I said, 'Yeah.' "

Later, speaking about the deal in public for the third time, he added a rare moment of personal reflection. "I don't know if I'll get to do another acquisition during my career."

Special correspondent Heather Landy in New York contributed to this report.