Looking back at Bank of America and Merrill Lynch's troubled courtship, Dan wonders whether we all lost site of the big picture a year ago: This was destined to be a bad honeymoon and a great marriage. I think Dan's right.


Merrill lost billions in 2008 but retained one of the best wealth management programs in the world. Indeed, ten months after the merger, Merrill was hauling in 30 percent of BofA's profits. I don't know if that's a sustainable or even desirable percentage, since BofA's profits have been held down by weakness in the commercial lending and real estate markets. But considering the year Merrill had in 2008 with more than $12 billion in writedowns, it was something like a small miracle:

Merrill's businesses contributed $1.8 billion to Bank of America's first-half net profit of $7.5 billion, or 28 percent, even after the bank posted $27 billion in loan charge-offs and higher loan-loss reserves, according to company filings. Those businesses are likely to account for 25 percent to 30 percent of the bank's profits over the next three years

The share of the bank's revenue that came from investment banking and wealth management rose to 47 percent in the first half, after the Merrill acquisition, from 29 percent last year, according to the bank.

If this vindicates anybody, it's Merrill. I spoke to a source on the Merrill side close to the merger during the bad honeymoon period, when shareholders were screaming for BofA CEO Ken Lewis' neck. He seemed confident that the Merrill merger would work out much better than pessimists anticipated.

So what do you think Ken Lewis was thinking [when he went to the government for money], I asked. "I think he panicked. He could have said, 'These are bad losses but Merrill wouldn't have needed to be bought if the losses weren't terrible. We still believe going forward that over the next 3, 5 10 years, this is great deal.' Instead of doing that, he panicked."

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