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Word On the Street

BoA buying Merrill, Lehman filing bankruptcy

September 15, 2008

By MortgageDaily.com staff

Lehman Brothers is filing for bankruptcy protection, Bank of America Corp. reached a deal to acquire Merrill Lynch & Co. Inc. and former executives of the government sponsored enterprises have been denied their golden parachutes.

BoA today issued a statement indicating it would acquire Merrill in a $50 billion all-stock transaction. Shareholders of the New York-based investment bank will receive 0.8595 BoA common shares for each Merrill common share.

The deal is expected to close in the first quarter of next year, while the acquisition is expected to be accretive to earnings by 2010. Within three years, BoA expects to save $7 billion annually from the merger.

Merrill was tied to First Franklin Financial Corp. and subsidiary NationPoint, which both shut down in March; Wilshire Credit Corp.; and Ownit Mortgage Solutions, which with its December 2006 collapse was among the first casualties of the subprime crisis.

BoA completed its acquisition of Countrywide Financial Corp. on July 1.

BoA went into the weekend as one of multiple possible suitors of troubled Lehman Brothers Holdings Inc. But when talks, which reportedly involved the Federal Reserve and the U.S. Treasury, fell apart because the U.S. government refused to involve taxpayer money in a possible transaction, Lehman was left with no option except bankruptcy.

An announcement today indicated the New York firm intends to file a petition under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York. None of its broker-dealer subsidiaries are included in the filing and will continue to operate.

Lehman had reported Wednesday that it will have an estimated third-quarter loss of $3.9 billion, including $5.3 billion in mark-to-market adjustments in its residential mortgage-related positions and $1.7 billion in its commercial real estate positions.

Lehman was parent to BNC Mortgage LLC, which shut down in August 2007. Its small business finance unit just recently stopped accepting commercial mortgage loan applications.

While the announcement made no mention of subsidiary Aurora Loan Services, which stopped accepting new business from mortgage brokers and correspondent lenders in January, the unit is likely to be picked up in a possible sale given the value of mortgage servicing operations in today's market.

Finally, the Federal housing Finance Board, the recently created regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, issued a statement Sunday indicating that former Fannie chief executive officer Daniel Mudd and former Freddie chairman and CEO Richard Syron will not be paid "golden parachute" payments as required under their contracts.

The move came after intense political scrutiny in the wake of a taxpayer financed bailout of the two GSEs.

"The agency, serving as conservator, determined that under applicable statute and regulation, the enterprises should not make such payments to these individuals and directed the enterprises accordingly," FHFA stated.

Futures trading this morning indicate the Dow Jones Industrial Average will likely open down more than 350 points, the Wall Street Journal reported.

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