UPDATE 1-Bank of America completes Merrill Lynch purchase

NEW YORK, Jan 1 (Reuters) - Bank of America Corp (BAC.N) completed its purchase of Merrill Lynch & Co on Thursday, creating the largest U.S. bank and perhaps one of the biggest challenges yet for longtime Chief Executive Kenneth Lewis.

The closing allows Bank of America to bypass JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) in size, giving it about $2.7 trillion of assets.

Bank of America had said it expected to issue 1.71 billion common shares, equal to $24.1 billion, plus 359,100 preferred shares in the merger. Merrill shareholders received 0.8595 of a Bank of America common share for each of their common shares.

The transaction, originally valued at $50 billion, came to fruition in the early morning of Sept. 15, about an hour before Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt, and may have saved Merrill from a similar fate.

It ends more than 94 years of independence for Merrill, after a year when the five top Wall Street banks were bought, went bankrupt, or changed their business structures.

Lewis is swallowing Merrill's "thundering herd" of 17,000 brokers, which he has called the "crown jewel" of the acquisition. He is also absorbing Merrill's big investment bank, which by volume ranked fifth in debt and equity underwriting and third in merger advice in 2008, Thomson Reuters data show.

The combined company's brokerage, credit card, investment banking, mortgage and wealth management operations, plus its deposit base, will make it the nation's largest or close to it.

Bank of America also takes over Merrill's nearly 50 percent stake in the powerful money manager BlackRock Inc (BLK.N).

"We are now uniquely positioned to win market share and expand our leadership position in markets around the world," Lewis said in a statement on Thursday.

The Charlotte, North Carolina-based bank did not immediately return calls seeking further comment.

NEW CHALLENGES

The transaction creates new challenges for Bank of America, whose shares fell 66 percent last year as the worsening economy led to soaring loan losses, including from Countrywide Financial Corp, which Bank of America bought in July.

Lewis must stem defections even as he prepares to cut at least 30,000 jobs overall to help save $7 billion a year by 2012.

And while Bank of America and Merrill together raised $25 billion of capital from the U.S. Treasury Department's $700 billion Troubled Asset Relief Program, many analysts have said they may need more. Bank of America in October halved its dividend, and some analysts said another cut might be needed.

Lewis faces a radically changed banking landscape that also includes Wells Fargo & Co's (WFC.N) $12.7 billion acquisition on Wednesday of Charlotte-based rival Wachovia Corp.

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.