Wall Street's Winners and Losers

A Banking Giant Grows More

By acquiring Merrill, Bank of America gained a major position in the investment management business, the ability to move into overseas markets and a large sales force.

Bank of America's stock did fall more than 21 percent Monday, but several analysts said that was because of the short-term problems with a merger and some people who felt that the giant bank was overextending itself.

"The merger is a superb merger in normal times," Bove said. "But in times like this, it was evident that Bank of America's stock was going crumble because it was going to pick up all of Merrill's problems."

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Bank of America is a behemoth. It has the country's most extensive branch network, with more than 6,100 locations covering some 30 states from coast to coast.

And it got that big over a short period of time.

In 2003, it paid $48 billion to acquire FleetBoston, giving it more branches and customer accounts than any other in the United States. Just two years later, Bank of America bought MBNA for $35 billion, making it the largest credit card issuer.

Mergers and Acquisitions

But the acquisition trend didn't stop there.

At the beginning of this year, Bank of America bought out the troubled Countrywide Financial, a giant lender often blamed for pushing many of the risky loans that started the housing crisis. It was a risky acquisition for Bank of America because it took on some bad loans, but at the same time it gained a much larger long-term foothold in the lucrative mortgage business.

And that growth just continues now with Merrill Lynch.

"I think that Bank of America has wanted an asset for years and has looked at this asset at higher prices," said Art Hogan, chief market analyst at Jefferies.

"It might have been cheaper in a few days," he added, but "they were probably willing to pay twice as much this time last year."

It will probably take until 2010 for Bank of America to see profits from the deal as it spends money on the acquisition and on merging the two workforces. Those expenses are part of why the stock fell today.

Basically, Hogan said, "This market is focusing on 2009."

And as for what's going through the minds of the folks at Citi this week, Hogan said: "You just got a larger competition. Somebody's knocking at your door, you're not going to be No. 1 anymore."

With reports from Alice Gomstyn and Rich Esposito