Bank of America Acquires Merrill Lynch Introduction ‘Merrill Lynch’ offers wealth administration services branched from Bank of Africa. The company previous name before the acquisition was Merrill Lynch & Co. , Inc. , before 2009; the firm ownership proves public and trades for the ‘New York stock Exchange’ with a ticket sign of MER. The consensus of sell to ‘Bank of America’ signature appears on 14, 2008, due to the overwhelming financial crisis. September, 2008 marked the milestone for Merrill Lynch & Co. , Inc. , as the Bank of America announces its goal to exclusively buy the later company with a stock deal of around $50 billion.
At this time in season, Merrill was on the verge of collapse, and the acquisition decision would save the company from bankruptcy. Bank of Africa also planned to purchase Lehman, but restrictions from the government limited their right to acquire the organization. The acquisition decision of Bank of America raised its status to the outsized financial services organization globally. The acquisition completes at the commencement of the period, 2009. The proceedings that fueled the fall of Merrill Lynch, acquisition by the Bank of America proves paramount; despite their loss, company still receives bonuses (United States, 2012).
Review of main causes of the 2007-2009 financial crises The causes of 2007-2009 financial crisis of Merrill Lynch were due to various reasons. The main one comes from the countrywide housing disaster. The national Housing crisis saw losses of up to $8.4 billion in the year 2007. The company decides to discharge E. Stanley O’Neil from the post of chief executive. The reasons proved that the chief executive consulted Wachovia Bank for Merger reasons without consulting the Board’s approval.
E. Stanley O’Neil’s dismissal prompted the recruitment of John Thain to fill the vacant in December 2007 (Robert, 67, 2012). In the Thain’s preliminary days of work, he had declared a number of changes such as accommodating former colleagues from NYSE, for example, Nelson Chai, occupying the CFO position, and the head of communications as Margaret D. Tutwiler. The changes made by Thai proved fast as the company announced the sale of its commercial financial business to General Electric and Vending of the stock’s top shares to Temasek Holdings, a Singapore State investment group, to enable the company raise their capital mark.
Merrill Lynch Company also experienced legal suits from the ‘New York Attorney General’, ‘Andrew Como’, in August 2008. The suit claimed distortion concerning the risks on Mortgage backed securities (Robert, 67, 2012). Causes of the financial crisis according to acquisition of Merrill Lynch by Bank of America The acquisition of bank of America from Merrill; shows that the financial crisis of the Merrill Company was tremendous that the company would have declined if the bank of America would not have intervened.
The massive loss that occurred in January, 2009 prompted the fusion of previously negotiated money, with the government. The Company appeared shocked with the news as they proposed purchase of the $12 billion in auction-rate arrears. The sentence means; the bank of Africa was not prepared for the huge losses that Merrill Lynch had made. This is true as they later found out that Merrill Lynch had made tremendous loss as compared to the information the Bank of America was supplied.
Later on the company annuls hiring as their subsidiary in the United Kingdom had reports a loss of approximately $30 billion; the result confirmed that they could pay no taxes. From there hence fourth Thai reported further losses despite the fact that they agreed with the Massachusetts Secretary of State’s buys back, auction rates with a maximum of $100 million deposits with Merrill Lynch between the periods ended October to January in the year 2009. The beginning of September 2008, the company status experienced demotion to conviction sales; and warned investors of the company’s financial status (Robert, 67, 2012). Regulatory solutions enacted in the US under the 2010 Dodd-Frank Act The regulations solutions enacted by the US government under the Dodd Frank Act proposed solutions to help the American Bank recover from the financial situation it declared.
The solution deemed adequate as it gives investors time; in this case the Bank of America to reason adequately about purchasing of another company’s securities. Despite the fact, the company requires such information; the credibility of the information appears none guaranteed. Though the law governing the Act, the buying company can sue the dishonest company, provided the buying company can prove the information at their disposal was limiting.
Relationship with the federal improved; and the government prompted the rise of Bank of America. If a company is registered under the act, the company, need to show the characteristics of security on sale. The description of the organization’s assets and businesses, data concerning the management; of the organization and the financial statement approved by the independent account; the acquisition raised the status of bank of America to the best bank globally.
The payment of bonuses by the Merrill funds comes from TARP bailout of close to $3.6 billion. The Bailout suggestion was done by Merrill reimbursement committee, after the merger approval, but before the determination of the fourth quarter. This foregone the previous company procedure as the only bonus award done in Merrill was the performance bonus. Approximately, 36.2% of TARP proved to be Merrill bonuses allocated by the treasury. The bonuses were meant to improve the performance of Merrill employees, and gain their loyalty (Ovanhouser, 56, 2009). Regulatory solutions proposed in the 2011 Vickers report in the UK The regulations proposed in the 2011 Vickers report in the UK proved adequate; because the regulation requires ring fencing bank’s sell arms, encouraging banks to increase their capital available to a certain range, and the introduction of a greater competition into the institution helps in solving intractable problems.
The solutions will help the bank remain safer; reduce the bank’s reliance into the government aids in case of crisis and finally the bank will be able to attend to societal needs and provide financial services to many more citizens.
The 1997-2007 rules to relieve many checks and balances; helped the Bank of America get back to recover from its financial crisis and at the same time injuring the economy of the UK. Collateralized debt obligation CDO, mortgage and credit default swaps were dealt with in favor of the Bank of America to help it recover from the financial crisis that The Merrill they were subjected to b y the Merrill. The deal yields a return of minimally $6 billion. The period ended July 2008; which proves the fourth quarter of the year, saw losses of close to $4.9 billion owing the losses to defaults in payment and awful investment strategy.
The mortgage proved a crisis when the company reported a daily loss of $52 million. The stock prices also emerge to be declining in the same period. The company lack of capital status prompted them to sell the hedge funds and securities in a bid to correct the situation. Temasek Holdings saved the company of the loss when they agreed to buy the funds and raise its investment level in the company by close to $3.4 billion (Kilborn, 36, 2011).
The figure 36 refers to the page number of the document source. Conclusion The decline in Merrill performance was fueled by inept governance and poor investment decisions. For a company to increase its profitability, and reliability ensures consultation consulted its auditing reports to ensure; their profitability is at par with their capital invested. The management of the company proves responsible to confirm the issues concerning such activities. It deems paramount for the organization to give full information of their financial status when undertaking business deals; to avoid confusion and long processes of law suits (Acharya, 23, 2011) References Acharya, V.
V., (2011), Regulating Wall Street: the Dodd-Frank Act and the new architecture of global finance, Hoboken, N.J. , John Wiley. Kilborn, J. J., (2011), Expert recommendations and the evolution of European best practices for the treatment of over indebtedness, 1984-2010. Deventer, The Netherlands, Kluwer Legal Publishers. Ovanhouser, R. T., (2009), Financial crisis in America. Hauppauge, N.Y. , Nova Science Publishers. Accessed at Robert, C., (2012), Bank of Africa Acquires Merill Lynch: who pays?
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