Bank of American buys Merrill Lynch; Lehman Brothers may go bankrupt!

Lehman Brothers has not found a buyer. Both BankAm and Barclays have walked off the deal as the Government has denied any financial support for taking over the fourth largest investment Bank. There are talks of a possible bankruptcy filing for Lehman Brothers which will be clear in a couple of days.

However, coming as a surprise, Bank of America has agreed to buy Merrill Lynch for $44 billion to become a universal bank in the USA which it has been trying to do since a long time. Bank of America talking to Merrill Lynch well before the perception of the disastrous event is a favourable event. Two giants talking well before time is a positive from the markets point of view. BoA stepping in and talking about a possible combination with Merrill leads to protection of the shareholder. Merrill with its high exposure to the subprime mortgages and a number of writedowns was headed in the direction of Bear Stearns and Lehman Brothers.

What's the connection to housing? The bursting of the housing bubble exposed the bad loans that have rocked Lehman Brothers and weakened the numerous banks that otherwise would be in a position to save Lehman. It's all connected. And until housing prices find a bottom, it's going to be difficult to measure the losses these big firms are holding on their books.