Bank of America to buy Merrill

AMERICA'S MONEY CRISIS

• Treasury invests $15B more in banks
• Consumer bankruptcies jump in 2008
• Sharp drop in small business loans
• Gold sinks to 2-week low
• Stocks finish lower

Market turmoil

• Wall Street on red alert

• Lehman's dying hours

• AIG plans sales to raise billions

Merrill Lynch CEO John Thain leaves The Federal Reserve Bank of New York Saturday following meetings with other bank executives and regulators aimed at ending the Lehman Brothers crisis.

NEW YORK (CNNMoney.com) -- Bank of America agreed to buy Merrill Lynch early Monday in an all-stock deal valued at as much as $50 billion, the clearest sign yet of the upheaval reshaping the nation's banking and securities industries.

Merrill, the 94-year old firm with its famous bull logo, has been an icon of Wall Street and investing in America. But it could not survive the billions in losses in the last year, primarily from rising mortgage foreclosures and delinquencies.

The acquisition was put together Sunday as Wall Street awaited the fate of battered investment bank Lehman Brothers (LEH, Fortune 500), which early Monday said it would file for bankruptcy.

Throughout the weekend, Bank of America (BAC, Fortune 500) was considered a potential acquirer of Lehman, though those discussions had broken off by Sunday afternoon.

The purchase price would value the company at about $29 a share, a 70% premium based upon Friday's closing prices of $17.05 for Merrill and Bank of America's closing price of $33.74.

Under the deal, Merrill sharesholders are to receive 0.8595 share of Bank of America common stock for each Merrill Lynch common share.

Merrill shares rose 33% in pre-market trading on the news, while Bank of America shares slipped 13%.

Like Lehman, Merrill Lynch (MER, Fortune 500) has been suffering from bad real estate bets and its stock price has been punished severely, losing 27% in just the past week and nearly half their value since the end of June. Shares are down 68% this year.

Concerns had been growing that Merrill would need to take more writedowns and raise more capital to shore up its balance sheet.

Merrill has posted net losses of more than $19 billion over the past four quarters. It had announced write-offs totaling nearly $39 billion on bad investments, driven greatly by losses on securities backed by home loans which have seen defaults and foreclosures soar.

"The Merrill deal addresses what the market fears most right now - a flood of assets hitting the market," said David Alpert, managing director of Westwood Capital.

A spokesperson for Merrill Lynch would not comment. Attempts to reach Bank of America for comment were unsuccessful. But the company's statement said the deal was good for both firms.

"Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," said the statement of BofA CEO Kenneth Lewis. "Together, our companies are more valuable because of the synergies in our businesses."

Bank of America is the nation's No. 3 bank holding company in terms of assets, behind only Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). A recent addition to the Dow Jones industrial average, it is the largest by market value.

But it the Charlotte, N.C.-based bank badly trails its two major New York-based rivals in its investment banking operations.

Lewis has a history of making bold acquisitions, including most recently, Countrywide Financial, the troubled mortgage lender. That purchase has so far exceeded expectations, with Bank of America saying recently that Countrywide would add to its earnings this year.

Some consider Merrill Lynch, and its massive retail brokerage operation, a better fit for Bank of America than investment bank Lehman would have been.

Merrill is the No. 3 Wall Street firm by revenue, but has a broader retail brokerage operation than its two larger rivals, Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500).

Merrill has cut 4,200 employees, mostly based in the United States, within the last year as it reorganized operations and tried to stem ongoing losses. But it still had 60,000 employees worldwide. Despite its troubles, Merrill still has the most extensive retail brokerage operations of the major Wall Street firms.

Bank of America's statement said with the deal adding Merrill Lynch's more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $2.5 trillion in client assets.

It also said that based on 2008 results, the combined companies will be the No. 1 number underwriter of global high yield debt, the No. 3 underwriter of global equity and the No. 9 adviser on global mergers and acquisitions.