Thursday, September 18, 2008

This is how you squeeze an Investment Bank

Bank of America Said to Cut Off Merrill Before Deal (Update1)
By Bradley Keoun and David Mildenberg

Sept. 18 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer John Thain told employees that Bank of America Corp. ``cut our trading lines'' in the days before it bought the firm, signaling a loss of confidence in the brokerage's ability to pay.

Thain made the comments while explaining his decision to sell Merrill, according to five employees who attended the event at the company's New York headquarters. The Sept. 15 remarks were rebroadcast on an internal system to all 60,000 employees.

``Before the trade was done Bank of America cut our trading lines,'' Thain said at the meeting, according to the people, who declined to be named because they weren't authorized to discuss the internal meeting. ``We did get them to put it back.''

The disclosure shows how close at least one of Merrill's trading partners was to reducing its credit after a 36 percent decline in the firm's stock price last week. The shares tumbled on speculation Merrill might be the next securities firm to collapse following Lehman Brothers Holdings Inc., which filed for bankruptcy protection on Sept. 15 after investors and trading partners lost confidence in the New York-based company.

Since the Bank of America agreement was announced on Sept. 14, Merrill has gained 17 percent in New York trading. The second-biggest U.S. securities firm by market value rose 55 cents, or 2.8 percent, to $19.91 in composite trading today as of 11:14 a.m.

Merrill spokeswoman Jessica Oppenheim declined to elaborate on the Bank of America moves or say whether other firms had pulled back their trading lines. Scott Silvestri, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment, citing a policy of not discussing client matters.

Trading Lines
Trading lines include credit or liquidity sources that securities firms use to facilitate transactions or to meet cash needs.

Merrill began its talks with Bank of America on Sept. 13, even as the bank was considering a bid for Lehman, and struck a deal by nightfall the next day.

Since then, Merrill's stock was one of only two gainers -- the other is Jefferies Group Inc. -- in the 10-company Amex Securities Broker-Dealer Index. Morgan Stanley, the third-biggest firm, is down 46 percent this week, while No. 1 Goldman Sachs Group Inc. has tumbled 31 percent.

To contact the reporters on this story: Bradley Keoun in New York at; David Mildenberg in Charlotte at Last Updated: September 18, 2008 11:21 EDT