Investment Banks vs. Commercial Banks

An investment bank: aids a company in acquiring funds offers advice on company transactions, such as mergers and acquisitions generates funds for a company by selling stock to public shareholders or by seeking out venture capital or private equity in exchange for stake in the company

Investment Bankers: are real-estate agents for companies connect buyers and sellers of companies to create deals We dont create anything and we dont buy anything. We just sell things that arent ours to begin with. -Investment Banker from Merger Inquisitions

A commercial bank: lends money to customers accepts deposits to personal and corporate accounts finances loans for individuals and businesses

Investment BankerCommercial Banker

Founded in 1914 by Charles Merrill and Edmund Lynch Made several successful investments early on and quickly focused on investment banking Was the first firm on Wall Street to publish an annual fiscal report (1941) When Lynch died in 1952, the company officially changed its name to Merrill Lynch and Co. The company continued to build its brokerage network and eventually became known as the thundering herd The company went public in 1971

In November 2007, CEO Stanley ONeal resigned after the company posted a $2.24 Billion loss from subprime mortgages In December, John Thain, then CEO of the NYSE, became the new CEO of Merrill Lynch Later that month, the company sold its commercial finance division to General Electric in an effort to raise capital In July 2008, Thain announced a $4.9 Billion loss for the fourth quarter In 12 months, the company lost $19.2 Billion, equivalent to a loss of $52 Million/day

In August, the company became embroiled in a series of lawsuits regarding misrepresentation of risk on auction rate securities On September 5 th, Goldman Sachs downgraded the company to a sell and, Bloomberg revealed that the company had lost $51.8 Billion as a result of bad mortgage investments On September 14 th, Bank of American purchased Merrill Lynch for $50 Billion in stocks, at $29/share- a 61% drop from 12 months prior Merrill Lynch had over $1.02 Trillion in assets and over 60,000 employees worldwide

Began as the Bank of Italy in 1904 (San Francisco) Merged with Bank of America (Los Angeles) in 1929 and changed its name to BankAmerica Introduced the BankAmericard (credit card) in 1958 which eventually changed its name to VISA in 1975 BankAmerica expanded outside of California for the first time with acquisition of Seafirst Corp. (Seattle, Washington) in 1983 Was the largest U.S. bank in terms of deposits until 1997 when it fell behind Nations Bank Nations Bank was founded in Charlotte NC in 1874, first known as North Carolina National Bank Nations Bank merged with the San Francisco based BankAmerica in 1998 to form what is known today as Bank of America Headquarters were relocated to Charlotte in the $64.8 billion deal Still operates under Bank of Italys 1927 Federal Charter

2004: National Processing Company (Kentucky) $1.4 billion 2004: FleetBoston Financial (founded in 1784) $47 billion 2006: MBNA (credit card giant) $35 billion 2007: United States Trust Company (from Charles Schwab Corp.) $3.3 billion 2007: ABN AMRO North America LaSalle Bank Corp. & LaSalle Corporate Finance from ABN AMRO $21 billion 2008: Countrywide Financial (mortgages) $4.1 billion September 14, 2008: announced they would purchase Merrill Lynch & Co. for $50 billion

With acquisition of Merrill Lynch & Co., Bank of America is currently the largest financial services company in the world Has global headquarters in New York, London, Singapore, and Hong Kong Part of the Global ATM Alliance Examples of Services: checking, savings, credit cards, mortgages, home equity, auto loans, personal loans, IRAs (individual retirement account), investment services, mutual funds, insurance Kenneth D. Lewis is current CEO 207,000 employees Market Cap: $170.9 billion

For Merrill LynchFor Bank of America Stock had lost 61% of its value since current CEO John Thain took over, selling at % return rate Acquired one of the largest companies on Wall Street, making the financial world smaller Acquisition raised stock price to $29/share, a 70% premium Projected $7 billion in pretax savings Some security for the first time since the beginning of the credit crisis at the start of the year Better expand global footprint and take advantage of retail market Rival Citigroup Inc. for largest bank Will be able to offer Merrill Lynchs retail brokerage services to large customer base Merrill Lynch is part of the brokerage behemothit has more than advisers and more than $2.5 trillion in client assets

For Merrill LynchFor Bank of America Possible job loss Investors may not want mortgage and real estate funds to be contributed to their portfolios More aggressive than the conservative Bank of America so brokers may be moving to other firms, taking clients with them Overpaid for Merrill Lynch based on its current value; difficult to estimate company assets in current market environment $29/share is still well below 2007 peak of $98/share Ability to absorb two large companies (Countrywide and Merrill Lynch) is questionable Merrill Lynch has reported four quarters of losses and is a risk

Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders, said Bank of America Chairman and CEO Ken Lewis. I believe that this will become the leading financial institution in the world, said Merrill Lynch Chairman and CEO John Thain.