Merrill Lynch Sold, AIG Restructures Amid Losses

While investment bank Lehman Brothers has been unable to find a buyer — leading it to file for bankruptcy — another giant financial institution has cut a deal. Merrill Lynch, one of the biggest and best-known brokerage firms in the world, has agreed to be sold to Bank of America for $50 billion.

"All of these developments are part of the same collapse of confidence in the financial markets, and Merrill Lynch has really been in the thick of it for months," NPR's Jim Zarroli tells Renee Montagne.

Like other financial firms, Merrill Lynch has suffered big losses in the mortgage markets. CEO Stan O'Neal was ousted last October when those losses turned out to be bigger than expected. He was replaced by the former head of the New York Stock Exchange, John Thain, who tried to turn the company around.

"He took a lot of bad assets off the books; he tried to draw in new money from investors. That worked for awhile. As happened throughout this crisis, they were able to sort of temporarily gain control of the situation," Zarroli says. "But ultimately, there was just this, you know, slow drip of rumors and concern about Merrill's financial position. And I think that once Lehman went under — or once it became apparent Lehman was going under — I think Merrill finally just decided, you know, if we're going to survive, the only way to do it is to become part of a much bigger and stronger company. Bank of America came along — it's got deep pockets. Although it's had losses too, it's just in a much better position to survive the turmoil, so Merrill decided to go with Bank of America."

Lehman's bankruptcy and Merrill Lynch's sale mean that just two of the five biggest independent broker-dealer firms on Wall Street are still standing, Zarroli says.

"We're seeing just a historic restructuring of Wall Street," he says.

A few financial companies are expanding — Bank of America, already the biggest bank in the country, now adds a large brokerage operation — but others still face trouble.

American International Group, the world's largest insurance company and one of the 30 stocks in the Dow Jones Industrial Average, is having a liquidity crisis. One thing the firm does is insure bonds tied to the mortgage market, which leaves them on the hook when mortgage defaults increase.

"So it's facing a big ratings downgrade, which would really be just devastating to its bottom line," Zarroli says. On Sunday, "the company basically came out and said it would be announcing a restructuring. ... So we're still waiting to see exactly what happens there."

The ties between Wall Street firms mean that these problems have a ripple effect through the broader economy, Zarroli says. "It's not just AIG or Lehman in trouble. ... One firm goes down, and it can drag others down. And we're going to see what that means today."

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