MICHELE NORRIS, host:
Bank of America went into the weekend looking at the possibility of buying Lehman Brothers. It emerged with a different company, the giant brokerage house Merrill Lynch. The 50-billion-dollar deal was approved late last night. Today, the two companies' top executives talked about the deal and what they hope to gain from it, as NPR's Jim Zarroli reports.
JIM ZARROLI: For months, Merrill has been mired in the subprime mortgage mess. CEO John Thain tried to stabilize the firm, but the stock kept falling. Finally, over the weekend, Thain called Bank of America Chairman Ken Lewis in Charlotte. He knew Lewis had been looking for a brokerage house to acquire. In less than two and a half hours, Lewis had flown to New York to talk to Thain about a deal. Here's Thain at a press conference today.
Mr. JOHN THAIN (CEO, Merrill Lynch): It became clear to me that it would make sense to explore options for us, that the funding of independent investment banks was going to come under pressure, and the opportunity to put this transaction together really was a unique one.
ZARROLI: A merger with Bank of America wasn't necessarily the outcome that Thain had expected when he became CEO. He joined the firm late last year after the previous CEO, Stan O'Neal, was fired. The company had been struggling with a load of bad mortgage debt that only seemed to get bigger as time went on, says Lawrence White, professor at NYU's Stern School of Business.
Dr. LAWRENCE WHITE (Professor of Economics, Stern School of Business, NYU): Merrill, like many other financial institutions, invested, with 20-20 hindsight, unwisely in a lot of residential mortgage-related securities, and they're facing difficult times.
ZARROLI: Thain who had been serving as the head of the New York Stock Exchange tried to clear some of the bad debt off Merrill's balance sheet. He also sought outside investment money. But his efforts to restore confidence on Wall Street failed. On Friday, Merrill's share price fell sharply, and the Treasury Department's refusal to bail out Lehman Brothers last week made it seem unlikely it would do much for Merrill. The best way for Merrill to survive was to become part of a much bigger company, and no bank is bigger than Bank of America. Lyle Gramley is a former Federal Reserve governor.
Dr. LYLE GRAMLEY (Former Governor, Federal Reserve): What Merrill Lynch did was to say, look, if our situation were to deteriorate - we don't know that it will, we don't know that it won't - we might have a very difficult time finding a buyer. We've got a potential buyer now, let's go through with it.
ZARROLI: Now Thain's venerable firm whose logo is a bull will be subsumed into the vast Bank of America empire. It will still operate under the same name, but it's lost its independence. Merrill is the third big broker-dealer to disappear this year after Bear Stearns and Lehman Brothers. Only Goldman Sachs and Morgan Stanley remain. But Thain told reporters today that the merger will leave Merrill much better positioned to survive the bloodbath now occurring in the markets.
Mr. THAIN: This is probably the most difficult environment in financial markets that I've experienced in my 30 years in the business. But it is a cycle, and we will get through it. It will get better. And when it gets better, I think this combination will be incredibly strong and do very, very well.
ZARROLI: Merrill's fate is better than Lehman's. While both companies invested heavily in the mortgage market, Merrill's loses were ultimately smaller. Many critics say it was quicker to address them once problems started. And when the company found a way out of the trouble it was in, it took advantage of it. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.
