Investment Banks vs. Commercial Banks

An investment bank: aids a company in acquiring funds offers advice on company transactions,

such as mergers and acquisitions generates funds for a company by selling

stock to public shareholders or by seeking out venture capital or private equity in exchange for stake in the company

Investment Bankers: are real-estate agents for companies connect buyers and sellers of companies to create deals

“We don’t create anything and we don’t buy anything. We just sell things thataren’t ours to begin with.”-Investment Banker from Merger Inquisitions

A commercial bank: lends money to customers accepts deposits to personal and corporate

accounts finances loans for individuals and

businesses

Investment Banker Commercial Banker

Founded in 1914 by Charles Merrill and Edmund Lynch Made several successful investments early on

and quickly focused on investment banking Was the first firm on Wall Street to publish an

annual fiscal report (1941) When Lynch died in 1952, the company

officially changed its name to Merrill Lynch and Co.

The company continued to build its brokerage network and eventually became known as the “thundering herd”

The company went public in 1971

In November 2007, CEO Stanley O’Neal resigned after the company posted a $2.24 Billion loss from subprime mortgages

In December, John Thain, then CEO of the NYSE, became the new CEO of Merrill Lynch

Later that month, the company sold its commercial finance division to General Electric in an effort to raise capital

In July 2008, Thain announced a $4.9 Billion loss for the fourth quarter

In 12 months, the company lost $19.2 Billion, equivalent to a loss of $52 Million/day

In August, the company became embroiled in a series of lawsuits regarding misrepresentation of risk on auction rate securities

On September 5th, Goldman Sachs downgraded the company to a “sell” and, Bloomberg revealed that the company had lost $51.8 Billion as a result of bad mortgage investments

On September 14th, Bank of American purchased Merrill Lynch for $50 Billion in stocks, at $29/share- a 61% drop from 12 months prior

Merrill Lynch had over $1.02 Trillion in assets and over 60,000 employees worldwide

Began as the Bank of Italy in 1904 (San Francisco) Merged with Bank of America (Los Angeles) in 1929 and changed

its name to BankAmerica Introduced the BankAmericard (credit card) in 1958 which

eventually changed its name to VISA in 1975 BankAmerica expanded outside of California for the first time with

acquisition of Seafirst Corp. (Seattle, Washington) in 1983 Was the largest U.S. bank in terms of deposits until 1997 when it

fell behind Nations Bank Nations Bank was founded in Charlotte NC in 1874, first known as

North Carolina National Bank Nations Bank merged with the San Francisco based BankAmerica

in 1998 to form what is known today as Bank of America Headquarters were relocated to Charlotte in the $64.8 billion deal Still operates under Bank of Italy’s 1927 Federal Charter

2004: National Processing Company (Kentucky) $1.4 billion

2004: FleetBoston Financial (founded in 1784) $47 billion

2006: MBNA (credit card giant) $35 billion 2007: United States Trust Company (from Charles

Schwab Corp.) $3.3 billion 2007: ABN AMRO North America LaSalle Bank

Corp. & LaSalle Corporate Finance from ABN AMRO $21 billion

2008: Countrywide Financial (mortgages) $4.1 billion

September 14, 2008: announced they would purchase Merrill Lynch & Co. for $50 billion

With acquisition of Merrill Lynch & Co. , Bank of America is currently the largest financial services company in the world

Has global headquarters in New York, London, Singapore, and Hong Kong

Part of the Global ATM Alliance Examples of Services: checking, savings, credit

cards, mortgages, home equity, auto loans, personal loans, IRAs (individual retirement account), investment services, mutual funds, insurance

Kenneth D. Lewis is current CEO 207,000 employees Market Cap: $170.9 billion

For Merrill Lynch For Bank of America

•Stock had lost 61% of its value since current CEO John Thain took over, selling at -12.71% return rate

•Acquired one of the largest companies on Wall Street, making the financial world smaller

•Acquisition raised stock price to $29/share, a 70% premium

•Projected $7 billion in pretax savings

•Some security for the first time since the beginning of the credit crisis at the start of the year

•Better expand global footprint and take advantage of retail market

•Rival Citigroup Inc. for largest bank

•Will be able to offer Merrill Lynch’s retail brokerage services to large customer base

•Merrill Lynch is part of the brokerage behemoth—it has more than 20 000 advisers and more than $2.5 trillion in client assets

For Merrill Lynch For Bank of America

•Possible job loss •Investors may not want mortgage and real estate funds to be contributed to their portfolios

•More aggressive than the conservative Bank of America so brokers may be moving to other firms, taking clients with them

•Overpaid for Merrill Lynch based on its current value; difficult to estimate company assets in current market environment

•$29/share is still well below 2007 peak of $98/share

•Ability to absorb two large companies (Countrywide and Merrill Lynch) is questionable

•Merrill Lynch has reported four quarters of losses and is a risk

“Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,” said Bank of America Chairman and CEO Ken Lewis.

“I believe that this will become the leading financial institution in the world,” said Merrill Lynch Chairman and CEO John Thain.