By Madlen Read

The Associated Press

NEW YORK

Merrill Lynch's shotgun sale to Bank of America will create the nation's largest financial services company - one that some believe is too big to fail. Still, no one is breathing easy just yet.

The deal keeps Merrill from a Bear Stearns-style fire sale or a complete meltdown like Lehman Brothers while removing a major player that some expected to be the next shoe to drop in the credit crisis. At the same time, it will enable Bank of America to expand the financial services it offers to its already huge customer base.

Still, the challenges are enormous: The two companies have starkly contrasting cultures. Billions of dollars of bad debt remain on Merrill's books, while Bank of America still faces huge consumer credit losses. And the deal was slapped together in less than two days - meaning that the two financial powerhouses might not know exactly what they are getting themselves into.

"It's a big gamble," said Alois Pirker, senior analyst at Aite Group, a financial services advisory and research firm. "They could be the No. 1 financial services firm in all areas. But if it doesn't work out, it could go very badly."

The deal, originally valued at $50 billion, happened as bank and government officials met over the weekend to decide what to do about the ailing Lehman Brothers Holdings Inc., which ended up filing for bankruptcy. In an attempt to avoid the same fate , Merrill Lynch & Co. - whose stock also has been plunging - asked Bank of America Corp. if it would be interested in a deal.

Bank of America shares fell $7.19, or 21 percent, to $26.55 on Monday, and Merrill shares rose just a penny to $17.06. Under terms of the transaction, Bank of America would exchange 0.8595 shares of Bank of America common stock for each Merrill Lynch common share. Based on Bank of America's closing price Monday, the deal was valued at less than $40 billion, or $22.82 a share.

Bank of America has been trying for years to successfully build an investment banking arm, and Merrill does fit that bill.

But the obstacles are huge - and not just in terms of Merrill's risky mortgage-backed assets, which led ratings agency Standard & Poor's to cut its credit rating on Bank of America on Monday. Merrill has posted quarterly losses for four straight quarters. It has written down $40 billion from failed investments, but uncertainty remains on how big the next round of write-downs could be on its exposure to $8.8 billion in asset-backed securities.

"This was a Hail Mary. They wanted to get so big that, now, it will be easier for them to get financing, get the Fed to help them, or get a bailout because now they're really too big to fail," said Peter Schiff, president of Euro Pacific Capital.

The deal comes as Bank of America tries to digest another troubled company, Countrywide Financial Corp. The mortgage lender was about to go belly-up before Bank of America came along earlier this year to snap it up.

Even if the acquisition had come at an easier time in the industry, investors might still be wary about the matchup, because the two cultures are so vastly different.

Merrill Lynch was founded in 1914 by Charles Merrill and his friend Edmund Lynch. With its iconic bull mascot, it became known as an aggressive, brash Wall Street powerhouse.

Bank of America, on the other hand, traces its roots to early 20th-century San Francisco. The bank took its current form - and culture - when it was acquired by NationsBank Corp. in a $57 billion deal in 1998. NationsBank took the Bank of America name but kept its headquarters in Charlotte, N.C. The deal was led by Hugh L. McColl Jr., an ex-Marine who oversaw 70 acquisitions since the early 1980s.

"Culturally, you're merging a staid and stable Southern banking culture, if you will, with a New York, down-and-dirty street- fighting culture. I don't think they could be further apart," said Rob Hegarty, managing director at Tower Group, a research and consulting firm for the global financial services industry. Merrill Lynch is "going to have to lower their risk profile in order to come under the BofA umbrella. There's no question that neither the BofA management nor BofA shareholders have the stomach for a swashbuckling Wall Street investment firm."

Bank of America CEO Ken Lewis seems aware of the difficulties he faces.

"I don't know if I will get to do another acquisition during my career," Lewis said during a news conference. "This is too important not to get right, so we're going to be focused on this one for quite some time."

Originally published by BY MADLEN READ.

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