Merrill Lynch lost $51.8B on subprime mortgages — then BoA bought it for $29/share

Merrill Lynch was founded in 1914 by Charles E. Merrill and Edmund C. Lynch and grew into one of Wall Street's most powerful investment banks, known as the 'thundering herd' for its vast network of 15,000+ financial advisors. For most of the 20th century, it was the dominant retail brokerage in America, bringing the stock market to Main Street through its innovative branch network.

Merrill's collapse was driven by massive exposure to mortgage CDOs. Under CEO Stan O'Neal, Merrill had accumulated a $55B portfolio of mortgage-related CDOs. When housing turned, these assets collapsed. In October 2007, Merrill reported an $8.4B writedown — the largest quarterly hit any Wall Street firm had ever taken — and O'Neal was forced out. John Thain took over and raised capital by selling $12.7B in new shares and $30B of troubled assets, but the losses kept mounting.

By September 2008, Merrill had reported $19.2 billion in losses for the year and total mortgage-related writedowns of $51.8 billion — far exceeding its remaining equity. With Lehman Brothers collapsing that same weekend, Bank of America CEO Ken Lewis moved quickly to acquire Merrill Lynch. On 14 September 2008, BoA announced it would buy Merrill for 0.8595 shares of BoA stock per Merrill share, valuing the deal at roughly $29 per share — a 70% premium over the previous close, but a fraction of Merrill's $80-per-share book value.

The deal, valued at roughly $50 billion, closed on 1 January 2009. It created the largest US bank by assets. Merrill's 15,000-plus financial advisors became part of BoA's wealth management division under the Merrill Lynch brand. The acquisition almost fell apart when Merrill's fourth-quarter losses spiraled to $15.3 billion, but Lewis pushed it through after receiving an additional $20 billion in federal TARP funds. John Thain was fired in January 2009 after it emerged that he had spent $1.2 million renovating his office while the company was collapsing.