Wow!
I didn't see this coming. I thought it would take at least a few more weeks for Merrill to "disappear." What I really don't get is the premium BofA is paying. The buyout is for $29 dollars a share, and Merrill closed at $17 Friday.
BofA is buying them for $43.5 billion. That seems like a lot considering the July sale of Merrill's $30.6 billion in CDO assets to Lone Star Funds for 22 cents on the dollar. Merrill put up 17 of those cents in a loan to Lone Star). If Lone Star defaults on that loan, (because those CDOs turn out to mostly be junk), Merrill's only recourse is to take them back. It might be a good move by Lone Star, they bet $1.2 billion, and could make a bunch more, but their loss is limited.
Merrill booked $6.7 billion in income from this transaction. That's making the assumption that the $5.5 billion that was a loan is actually made good.
If that loan defaults, I'm sure BofA will be thrilled to take those lousy CDOs back on it's books. After all, they bought Countrywide, didn't they? They must have quite an appetite for over-valued mortgage paper.
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Check out the europe markets right now.
http://finance.yahoo.com/intlindices?e=europe
Expect a bad day today on the markets. Glad I'm short. :)
Don't forget that the collapse of these institutions is due to leverage on the CDO assets that are hard to value. The CDO assets are probably not as bad as they are made out to be. Merrill was $55 a share in May. Not to say they were really worth that but $29 may be a bargain. This crisis will pass and some of these institutions are very valuable.
That is why I'm buying like mad right now. It is like the "blue light special" on financial stocks.
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