Bank of America’s Acquisition Writing Assignment

Bank of America’s Acquisition
Name
Institution
Bank of America’s Acquisition
* Executive Summary
Bank of America management faces issues on how to deal with major losses incurred by Merrill Lynch, losses that had not been anticipated for and thus pose a threat to the merger deal. Also, the management faces an issue on whether to disclose Merrill’s situation to the shareholders. To solve these issues, this paper recommends thorough risk analysis of the management which ensures that assets and liabilities are well-valued.
* Statement of the Problem
The management at Bank of America was faced with several challenges that relate to the acquisition of Merrill Lynch. First, Merrill was incurring major losses which would be transferred to shareholders if the merger closed (Rhee). Merrill’s continued operations resulted in poor financial results that were highly associated with high market volatility and toxic asset investment. The management had to decide on whether to proceed with the merger or terminate the deal before the situation worsened. This was a short-term problem because the market would prevail once the financial crisis would be abated. Second, Bank of America management was faced with the challenge of whether to inform the shareholders of Merrill financial situation before closing the deal. This was not an easy decision given that the shareholders would bear the burden of losses incurred from Merrill. This was also a short term problem because eventually, the disclosure had to be made during the next shareholders’ meeting.
* Causes of the Problem
Merrill’s major losses were caused by the toxic asset investments (Rhee 5). According to House and Masatlioglu (2015), financial institutions with toxic assets are unable to remain afloat due to liquidity issues. The assets are hard to value, which was what was happening at Merrill Lynch. The second problem of disclosure to shareholders was caused by the lack of a written agreement on when the deal would be closed (Rhee 10). As such, when the shareholders had met before the de...