Bank of America takeover to end independent Merrill

By Jonathan Stempel and Elinor Comlay

NEW YORK (Reuters) - Bank of America Corp's $50 billion acquisition of Merrill Lynch & Co would mark the end of a storied name in American finance, but create the nation's biggest bank by far.

Investors soured after the merger was announced early Monday, worried it magnifies Bank on America's exposure to risky debt in a fragile economy, less than three months after the bank acquired mortgage giant Countrywide Financial Corp.

"There is a lot of mistrust out there that the deal will go through at the announced price," said Chip Hanlon, president of Delta Global Advisors Inc in Huntington Beach, California.

Bank of America stock dropped 21.3 percent, ending down $7.19 at $26.55, and wiping out $33 billion of market value. Merrill rose 1 cent to $17.06, despite being valued in the all-stock merger at $29 each, a 70 percent premium to Friday's close.

A purchase would end the 94-year independence of Merrill, Wall Street's third-largest bank, and pair it with a banking behemoth that has announced more than $150 billion of acquisitions in the last five years. Bank of America would pass Citigroup Inc, the largest bank by assets, in size.

"There's some concern they might have bit more than they could chew," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

Monday's merger deal came together in less than two days -- after Merrill Chief Executive John Thain called Kenneth Lewis, his counterpart at Bank of America, to propose a combination.

This came as Thain, other industry executives and U.S. Federal Reserve officials huddled in emergency meetings in downtown Manhattan over the weekend to mull the fate of Lehman Brothers Holdings Inc, Wall Street's fourth-largest investment bank. Lehman filed for bankruptcy protection Monday.

The shotgun merger was similar to JPMorgan Chase & Co's agreement to buy Bear Stearns Cos in March, except that the Bear purchase went through with financial backing from the Fed. There was no such backing this time, and Lewis said there was "absolutely no pressure" from the Fed to buy Merrill.

"This was the strategic opportunity of a lifetime," Lewis, 61, said at a news conference with Thain in Bank of America's new offices in New York. The bank's headquarters will remain in Charlotte, North Carolina, Lewis said.

Adding Merrill would more than double the size of Bank of America's investment banking unit, and give it the largest retail brokerage and a dominant position in wealth management. It also would get Merrill's 45 percent stake in the asset manager BlackRock Inc.

Bank of America was already the nation's largest retail bank, credit card issuer and mortgage provider.

"This creates the company it would have taken a decade to build," Lewis said.

UNEXPECTED OUTCOME

The disappearance of Merrill would remove the third major New York-based financial services company in less than a year, after Lehman and Bear. A fourth, insurer American International Group Inc, is scrambling for capital because of losses on its mortgage-related debt.