BofA Merrill Lynch - The creature of Bernankenstein

I have already mentioned that I didn't understand why Ken Lewis decided to buy Merrill Lynch before it went bust and was willing to pay a 70% premium in order to get it. And of course, I am not the only one wondering why on earth he would do that. Also remember that, on the 15th of September 2008

When asked why he didn't wait until Monday to get Merrill at a lower price, Bank of America CEO Ken Lewis stated "the strategic opportunity was so compelling it couldn't wait."

Well, today after market, BofA reported its quarterly results were worse than expected. Profits fell 80% and BofA will cut its dividend by 50%. Also, the very well capitalized bank (remember, the US Banking system is safe and sound and well capitalized that's the reason why Paulson will buy back for 700 billion of toxic waste and that the Fed is injecting trillions of USD in the system) said that they will dilute their shareholders in order to raise 10 billion USD. That's about a 7% dillution at the current stock price. Expect a lot lower price for the new shares and hence a bigger dilution. According to the press release:

``These are the most difficult times for financial institutions that I have experienced in my 39 years in banking,'' Chief Executive Officer Kenneth Lewis said in the statement. ``It is prudent to raise capital to very substantial levels in this uncertain environment.'' (only 3 weeks after the biggest strategic opportunity Ken Lewis ever saw, that is, even better than the CountryWide deal)

So when these are the most difficult times in 39 years, why would you go and pay a 70% premium to buy a collapsing company? More and more, Ken Lewis doesn't make any sense, unless there's something going on that we don't know about, most likely involving Paulson and Bernanke.

Speaking of CountryWide, they (BofA) will pay $8.4 billion to settle the fraud case.

Now, here's a very interesting quote in found in the Gold Wars and dates back from 2000:

"Of particular note are the strange sequence of events leading to the merger of Chase Manhattan and J.P.Morgan & Co. [...] On Thursday, September the 7th, JPM's CFO and guiding light of the bank's derivatives strategy, Peter Hancock, suddenly resigned 'to pursue entrepreneurial interests'. On Monday, September 11th, the Chairman of CMB and JPM met for five minutes to agree to a merger. Five minutes??? Was someone present at this meeting holding a shotgun? There is a certain urgency about this whole affair, which leads me to wonder whether the Fed arranged this union. When something has to be done in such haste, there must be a problem. [...] The Fed might want to get the huge derivatives positions of thes two banks lodged together under one roof in the event that a rescue operation become necessary. Both from a practical and a political standpoint, it would be easier to achieve and justify a bail-out of one Wall Street 'fat cat' rather than two". (US Stockbroker Joseph J. Cacciotti of Ingalls & Snyder)

Hum... Sound familiar? It looks like BofA+Merrill is the twin sister of JPMChase, created in the same conditions and with the same original goal.