Bank of America Sucker-Punches Merrill Lynch Shareholders

How about another $10 billion of dilution, Merrill shareholders? On its way…

Bank of America (BAC) announced another lousy quarter and said it will be raising another $10 billion of equity capital. Smart, certainly, if the alternative is bankruptcy, but still a blow to Merrill shareholders, who will now get about 7% less for their firm than they expected (Unless the exchange ratio is adjusted, which seems unlikely).

Key points from the quarter: credit quality deteriorated.  We spoke to a bank analyst a couple weeks back who remains convinced that banks will now slowly go through the same writedown process that clobbered investment banks over the past year.

The investment banks, he said, took their lumps quickly, thanks to mark-to-market accounting. The banks, meanwhile, which are governed by far looser accounting standards, have likely seen similar asset deterioration but have yet to admit it.  Bank of America’s performance would seem to bear that out.

Bank of America also added insult to injury by cutting its dividend in half (also smart–why raise equity only to pump it out the door?-but annoying).

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