Sep 14, 2008


Now that it is well known that Merrill Lynch will be bought by Bank of America (contingent to a slew of conditions), the big question for BAC shareholders would be: 1) How much would this dilute current stockholder's positions? 2)Would this affect the dividend which Bank of America has been paying regularly and reaffirmed recently? What exactly will happen in the near future (1 week?) and....
UPDATE: Now there is definitely talk of BOFA's dividend cut. Check it out in this interview.
What would happen in the medium term (1 year?) and in the near long term (4-6 years?) - when it comes to the health of these financial institutions. This "crisis" which Wall Street still refuses to call as "panic" is mostly one of its own making. Printing money does not make finances strong, nor does undue leverage make any transaction sound and secure. But this has been pretty much the case with most of the mergers and acquisitions proposed and guided by several of these investment banking firms.
I am not expert on these topics, but it had been my grouse to see the easy availability of large money at low interest rates to big banking firms. Now that is it coming back to them, these firms are all crying and hoping for more bailouts. What is worse of course, is the plight of the middle class "investor" who will be hurt even more by the fall in stock price (or wipeout) due to large margin calls - if someone had been over risky to buy this on margin. I was long BAC sometime back, but sold out for a 2% profit on my capital because I just was not sure which way things would go. Of course my profit had already gotten wiped out by an improperly positioned LEH short, back when it was trading at 23-24. Hindsight is always 20/20.
Disclosure: I do not have any position in LEH or BAC or MER.


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