OK, so it's August. But this big bank rumor has to be the craziest ever.
So here goes:
JPMorgan Chase is going to take over Bank of America (by the end of the week, no less), with the US government making an investment of $100bn by way of preferred stock into BofA as the deal is signed.
BofA stockholders will be wiped out, several tens of thousands of staff will be laid-off, and Jamie Dimon will run naked down Wall Street singing Queen's We Are The Champions (OK, so we made that last bit up).
OK, so the bank has some serious issues to face, and CEO Brian Moynihan doesn't exactly inspire confidence, but BofA is surely no Lehman Brothers. According to The Wall Street Journal, Bank of America is America's biggest bank by assets, and is said to have over $400bn in cash in hand (meaning it can comfortably survive for almost 2 years without going to the market for new funding). It also possesses tens of billlions of dollars in non-core assets which it could sell to raise capital should it need to do so - and could probably offload Merrill Lynch (even in these markets) for around $50bn if it really had to.
So, no, a JPMorgan Chase / Bank of America tie-up just couldn't happen, could it ? But many of us said similar things in 2008 about Bear Stearns, Lehman Brothers and Merrill Lynch, and they all lost their independence (in various ways) within 6 months of each other. Nothing should surprise us anymore, but surely this is one market rumor too far.
Bank of America's stock is up over 8% in early trading Wednesday.
1. 'Unlikely given the political implications of another bailout at this time, although market confidence is on a knife edge (again) and certainly couldn't stand a run of any kind on one of America's largest banks. And there probably is only JPMorgan Chase big enough (and experienced enough) to do something like this'.
2. 'There just ain't no need for a deal, and no way politically is could be done. BofA will emerge from all this in better shape, although it will probably take 2 / 3 years to do so'.
3. 'The markets just need more clarity from BofA about the full extent of its assets and liabilities. The problem is that even the so-called experts don't agree, and the CEO (who is clearly a decent man) doesn't look like the person to lead the firm through these challenging times. A change at the top is probably called for. Bring on John Mack!'.