Bank of America/Merrill merger wins shareholder OK

NEW YORK (Reuters) - Shareholders on Friday approved Bank of America Corp's (BAC.N) takeover of Merrill Lynch & Co MER.N, a transaction fraught with risk but one that will create a banking giant with a leading position in almost every major area of the financial system.

Bank of America will surpass JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) as the largest U.S. bank, with $2.7 trillion of assets. Its brokerage, credit card, investment banking, mortgage and wealth management operations, plus its deposit base, will be the nation's largest or close to it.

The all-stock purchase values Merrill at about $21 billion, down from an original $50 billion on September 15 because shares of Charlotte, North Carolina-based Bank of America have slid. Shareholders of both companies had to approve the transaction, which is expected to close this month.

Acquiring Merrill is a gamble for Bank of America Chief Executive Kenneth Lewis, who is betting he can smoothly integrate a huge brokerage and investment bank while slashing jobs to achieve $7 billion of annual cost cuts.

John Thain, who became Merrill's chief executive after losses in mortgage-related investments led to the October 2007 ouster of Stanley O'Neal, agreed to run the merged company's global banking, securities and wealth management businesses.

"They have to make this work," said Anthony Plath, a finance professor at the University of North Carolina at Charlotte. "For years, we have tried to put a big investment bank together with a big commercial bank. No one has succeeded in serving customers and also making money for shareholders."

Merrill shareholders will receive 0.8595 of a Bank of America share for each of their shares. Shareholder vote tallies at both companies were not immediately available.

94 YEARS OF INDEPENDENCE ENDS

The takeover ends 94 years of independence for Merrill, in a year when Wall Street's top investment banks all met their demise or changed their stripes.

Bear Stearns Cos was acquired by JPMorgan, Lehman Brothers Holdings Inc (LEHMQ.PK) filed for bankruptcy, and Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) converted into bank holding companies.

Lewis is buying Merrill at a time of severe economic turmoil, with U.S. jobs disappearing last month at the fastest pace in 34 years.

Losses already are rising on credit cards and mortgages, and some analysts have said the bank might need to raise more capital or cut its dividend again, after halving it in October. Bank of America received $15 billion in the government's bank rescue package, while Merrill is getting $10 billion.

The 61-year-old Lewis has been a serial acquirer, spending close to $110 billion to buy FleetBoston Financial Corp, credit card issuer MBNA Corp, LaSalle Bank Corp, the U.S. Trust wealth business, and mortgage giant Countrywide Financial Corp.

Yet Bank of America's market value is now about $76.5 billion, down from $247 billion two years earlier and about half of the bank's book value as of September 30.

In Friday trading, shares of Bank of America closed up 90 cents, or about 6.3 percent, at $15.24. Merrill shares rose $1.13, or 9.5 percent, to $13.04.

THAIN NOT JOINING BOARD

While Bank of America shares have fallen 63.1 percent this year, the bank has so far survived the industry's turmoil, and Lewis on Thursday was awarded the Banker of the Year award for a second time by the trade newspaper American Banker.

Thain has run two public companies, Merrill and NYSE Euronext (NYX.PA)(NYX.N), after a long career at Goldman. Lewis said Thain is not joining Bank of America's board, according to a spokesman for the bank.

"Thain and Lewis are the best of their breeds in their respective industries, and Bank of America will need them," Plath said. "If Thain can turn investment bankers and brokers into team players in a big universal banking model, he will replace Lewis as CEO."

Merrill might be Lewis' last big purchase for Bank of America. "I don't know if I will get to do another acquisition during my career," he said, hours after announcing the takeover. "This is too important not to get right."

(Reporting by Jonathan Stempel, additional reporting by Elinor Comlay; editing by John Wallace and Carol Bishopric)