Bank of America CEO takes lumps on Merrill merger

Thompson, who ran Wachovia Corp, was undone by a disastrous $24.2 billion purchase of Golden West Financial Corp, leading to Wachovia's eventual takeover by Wells Fargo & Co (WFC.N).

Now Lewis, who has spent more than $130 billion on major mergers and like Thompson was considered a smooth integrator, has a takeover with a rocky beginning: Merrill Lynch & Co.

Bank of America is in talks with the U.S. government to get billions of dollars of new aid to digest Merrill and its still large book of troubled mortgage assets, a person familiar with the matter said.

The sum is on top of the $25 billion of funds the bank got from the Treasury Department's Troubled Asset Relief Plan. Bank of America declined to comment.

Bank of America's request suggests Lewis underestimated the potential losses at Merrill.

Analysts this month lowered earnings forecasts for several major banks, including JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N).

"It's not reassuring," said Kenneth Scott, a professor of law and business at Stanford Law School and former general counsel of the Federal Savings and Loan Insurance Corp. "There are more losses to be realized, but the question is the extent to which they are already reflected in values that banks are recording on their books."

Bank of America agreed on Sept 15 to a shotgun purchase of Merrill after less than two days of negotiations, which sprung from efforts to address problems affecting Lehman Brothers Holdings Inc LEHMQ.PK, which went bankrupt that morning.

After buying FleetBoston Financial Corp, MBNA Corp and LaSalle Bank Corp, as well as Countrywide Financial Corp in July, the Merrill takeover cemented the 61-year-old Lewis' reputation as an insatiable acquirer, similar to his predecessor as chief executive, Hugh McColl, known as "Huge."

It's a far cry from Lewis' roots in Meridian, Mississippi, where he was born in 1947. He joined Bank of America predecessor NCNB Corp as a credit analyst, and this year celebrates 40 years working for the same company.

Bank of America has estimated the Merrill price tag at more than $24.1 billion, based on regulatory filings. Adding Merrill gave it a huge investment bank, and above all a brokerage that Lewis called the "crown jewel" of the takeover.

The transaction made Bank of America the largest U.S. bank by assets, but saddled it with tens of billions of dollars of troubled debt, despite Merrill Chief Executive John Thain's success in offloading tens of billions of dollars more in the previous year.

Thain now runs Bank of America's global banking, securities and wealth management operations.

Bank of America told the government in mid-December that it might not buy Merrill without government help, the person familiar with the matter said. The merger closed on Jan 1 with the understanding a plan would be worked out, the person said.

Yet the bank never disclosed its concerns to investors, and its shares fell several percent after regular trading hours Wednesday as news of the talks surfaced.

Scott, the law professor, said it is unclear whether Bank of America should have disclosed more, though "as long as you don't say anything that's incorrect," it is often acceptable to wait on disclosing deterioration.

Lewis' other major concern is Bank of America's exposure to the deteriorating economy. Adding Countrywide made the bank the nation's biggest mortgage lender, and the company also has one of the biggest credit card portfolios.

Some analysts expect it to eke out a small profit in the fourth quarter, while others expect a loss.

At a Sept 15 press conference discussing Merrill, Lewis was optimistic about the merger. "We thought this was the strategic opportunity of a lifetime," Lewis said.

Thompson used almost the same language in May 2006 when he told Reuters after announcing the Golden West purchase: "There is a lot of fear about real estate but we're not market timers. We think this is a great franchise and a great opportunity."

The comments are close. And with Thompson now part of Wachovia's past, Lewis has to hope that things in the rear view mirror do not end up appearing closer than they are.

(Reporting by Jonathan Stempel)