Fallout from $50B Merrill Lynch Sale Begins

The reverberations from the acquisition by Bank of America Corp. of Merrill Lynch & Co. are already being felt. Although the $50 billion all-stock transaction is, along with the filing for Chapter 11 by Lehman Brothers, signaling the end of an era on Wall Street, those who masterminded the deal contend that it’s the product of opportunity, not desperation.In a live interview this morning, BofA CEO Kenneth Lewis told CNBC that once BofA has integrated Merrill Lynch, “this company will be a thing of beauty…We have the opportunity of a lifetime.” He also pointed out that BofA has moved quickly to integrate its large acquisitions from earlier this year, including Countrywide Mortgage. Lewis said that the acquisition will close in the first quarter of next year. In a prepared statement, Merrill Lynch chairman and CEO John Thain said the combined company will be “the leading financial institution in the world.” Lews said that although he expects that 2009 will be a rough year for the financial markets, he anticipates that housing prices will stabilize by mid-year. He also noted that the acquisition will generate “lots of opportunities” to cut expenses, estimating that $7 billion a year is in the ball park. In a year, he predicted, both companies will be glad they did the merger. In addition, Lewis questioned the viability of the independent investment bank model in the current market environment. In a similar vein, New York University economics professor Nouriel Roubini told Bloomberg.com that the independent securities firm model is “fundamentally flawed.” Michael Holland, founder and chairman of Holland & Co., New York, told Bloomberg, “We are unwinding what has been years of silliness in the financial markets, and the silliness is being vaporized as we speak, unfortunately with the stock price of a number of companies involved in it.” In July, The New York Times had noted that in the previous 12 months, Merrill Lynch had lost money at an average rate of $52 million a day. Ray Cirz, managing director of Integra Realty Resources’ northern New Jersey office, told CPN that tactically, the BofA/Merrill Lynch transaction could dent the New York City office market. Between them, he said, the two companies occupy about 6 million square feet of office space in New York. Assuming that half of that goes back into the market, that amount, although well under 1 percent of the total market, would nonetheless be about equal to the office space now under construction in the city. On a more strategic level, Cirz commented that this dislocation to Merrill Lynch doesn’t help stabilize the capital markets as they related to commercial real estate. Though the combined company might be a powerhouse down the road, he emphasized that “Right now, everybody’s worried about the short-term market.” Cirz mentioned that in a presentation he gave in May, he cited some Realpoint figures that over the next 12 months, 6,500 commercial mortgage loans were coming due. Those mortgages, representing 8.8 percent of outstanding commercial real estate loans, total about $74 billion.