Case Study Question for Boa Acquire Merrill

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1.The rationale of the treasury in pressuring all eight large banks to accept capital injection is to take control of these banks. In addition, the treasury can appease the public by providing liquidity to the banks. 2. Lewis should accept the preferred stock from the U.S. Treasury under the CPP program. On January 16, 2009, Treasury made an additional investment in Bank of America by acquiring $20 billion in newly issued senior preferred stock under the TIP. Combined with the $25 billion received under the CPP, Treasury’s total capital injection into Bank of America now totals $45 billion. Because the ceiling on the amount of capital that Treasury could provide under the CPP was capped at $25 billion, the TIP was sed as a vehicle to infuse additional assistance to Bank of America. The preferred stock acquired under the TIP carries an 8 percent dividend payable to Treasury. as required by EESA, Treasury also received warrants to purchase common stock of Bank of American at a strike price of $13.30 per share and with an aggregate value of $2 billion. Bank of America will be prohibited from paying dividends on common stock in excess of $0.1 per share per quarter for three years without the consent of Treasury. 3.On September 14, 2008, Bank of America announced its intention to purchase Merrill Lynch & Co., Inc. in an all-stock deal worth approximately $50 billion. Merrill Lynch was at the time within days of collapse, and the acquisition effectively saved Merrill from bankruptcy.[35] Around the same time Bank of America was reportedly also in talks to purchase Lehman Brothers, however a lack of government guarantees caused the bank to abandon talks with Lehman.[36] Lehman Brothers filed for bankruptcy the same day Bank of America announced its plans to acquire Merrill Lynch.[37] This acquisition made Bank of America the largest financial servicescompany in the

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