Merrill Lynch, the Wall Street investment bank, managed to seal a $50 billion (£27.9 billion) all-share deal to secure its long-term future just as its smaller rival Lehman Brothers filed for bankruptcy.
The Merrill Lynch board, led by John Thain, has agreed to be bought by Bank of America, the mortgage provider, for $29 a share, well above the $17.05 that Merrill Lynch stock closed at on Friday evening but below the $97 they fetched in January 2007. It is understood that both boards have approved the deal.
The deal will mean that Merrill Lynch, which has been dogged by questions over its mortgage-backed securities, is protected by Bank of America’s substantial current account, credit card and lending businesses.
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However, the prospect of a collapse of Lehman Brothers overshadowed proceedings in London and in New York. Workers from banks in both financial centres were ordered back to their desks on Sunday to try to calculate their groups’ exposure to a possible failed Lehman.
US authorities had tried to secure a rescue deal for Lehman Brothers over the weekend. Henry Paulson, US Treasury Secretary, and Tim Geithner, president of the New York Federal Reserve Bank, had convened an emergency meeting in New York on Friday evening to try to convince other banks to bail out Lehman.
They had hoped to ringfence $85 billion worth of Lehman’s real estate assets into one company, which they wanted banks, such as Citigroup and JPMorgan Chase, to prop up with $35 billion of new capital.