StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Acquisition of Merril Lynch by Bank of America - Essay Example

Cite this document
Summary
This essay analyzes the biases in decision-making by a corporation’s senior executives in the light of Bank of America’s acquisition of Merrill Lynch in 2009.The self-serve bias, one of the strongest biases faced in organizational decision-making…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.4% of users find it useful
Acquisition of Merril Lynch by Bank of America
Read Text Preview

Extract of sample "Acquisition of Merril Lynch by Bank of America"

Download file to see previous pages

The self-serve bias, one of the strongest biases faced in organizational decision-making, is a tendency to favor oneself. Generally people taking decisions with this kind of bias, credit themselves for success of their decisions while blaming others for their wrong decisions (Tosi, Mero & Rizzo, 2000, p.79). The aim of this essay to analyze if the decision taken by Bank of America’s executives was a result of self-serving bias. Background of the Problem Bank of America acquired the almost collapsed Merrill Lynch in January 2009 with the approval of shareholders of both the companies.

The deal was worth $50 billion. The acquisition made the bank world’s largest financial service provider. However, the earnings released in the same month revealed losses of $21.5 billion in the fourth quarter of Merrill Lynch. The executives of BOA in the announcement before the voting by shareholders provided an unjustified and randomly projected losses rather than the actual analysis of Merrill Lynch. This called for two times infusion of money by the government. However, the executives of BOA in November testified in a Congressional Hearing that they relied on faulty data in order to gain shareholder vote on the acquisition.

The forecasts of losses were faulty and some of the losses from collateralized debt obligations for the month of November and December, and various other illiquid assets were omitted. This omission of losses from the financial model used by Merrill Lynch, led to around $9 billion losses where the actual pre-tax losses should have been $18 billion (Cohan, 2009). The carelessness and absence of due diligence on part of BOA executives has had cost its shareholders and resignation of the chairman of BOA Kenneth D.

Lewis who also happened to be the chief executive of the bank. However, there is another aspect of the situation faced by BOA i.e. the executives in their testimony also provided the reason for ignoring the significant losses to be pressure from the government to acquire Merrill Lynch before it declares bankruptcy. Analysis of Executives’ Behavior The BOA executives’ testimony in case of Merrill Lynch’s acquisition shows that they deliberately ignored to make a careful analysis of the accounting books of Merrill Lynch.

The possible reason for this could be that they had already made up their minds about the acquisition and so ignored the basic principle of investment decision-making i.e. due diligence (Stowell, 2010, p.71). The motivation could be from the fact that the acquisition made BOA world’s largest financial services company and this could have been linked with the compensation and bonuses of the executives. BOA was also interested in buying the bankrupt Lehman Brothers, which was eventually taken over by Barclays.

Moreover, BOA executives’ over confidence stems from another recent successful acquisition of Countrywide Financial Corporation that made BOA America’s biggest home lender (Mildenberg & Keoun, 2008). At the time of acquisition announcement it was believed by many analysts that if BOA was able to restrict the bad assets, then Merrill Lynch’s retail distribution with sales force of 16,690 brokers managing $1.6 trillion of assets, could be the most profitable deal the bank had got during the financial crisis (Mildenberg & Keoun, 2008).

Unlike Barclays’ acquisition of Lehman without its bad assets for a much smaller amount, the Merrill Lynch deal was a hasty decision by BOA’s chief executive Kenneth D. Lewis. Lewis had been the driving force of BOA’s success around the nation (The New York Times, 2009). In a study of self-serving bias in managerial decision-making, it

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Acquisition of Merril Lynch by Bank of America Essay”, n.d.)
Acquisition of Merril Lynch by Bank of America Essay. Retrieved from https://studentshare.org/management/1442915-bank-of-america
(Acquisition of Merril Lynch by Bank of America Essay)
Acquisition of Merril Lynch by Bank of America Essay. https://studentshare.org/management/1442915-bank-of-america.
“Acquisition of Merril Lynch by Bank of America Essay”, n.d. https://studentshare.org/management/1442915-bank-of-america.
  • Cited: 0 times

CHECK THESE SAMPLES OF Acquisition of Merril Lynch by Bank of America

Bounds of Bank of America and Merrill Lynch

Running Head: Analysis of Corporate Strategy of bank of america on Merger with Merrill Lynch Are bank of america and Merrill Lynch Good for Each Other?... [Name of the Writer] [Name of the Institution] [Name of the Professor] [Course]                    Are bank of america and Merrill Lynch Good for Each Other?... hellip;       In the year 2008, it was seen that bank of america which was valued at $50 billion planned to acquire Merrill Lynch....
1 Pages (250 words) Essay

Bank of America Performance

bank of america Table of Contents Introduction 3 SWOT Analysis 5 Strengths of bank of america 5 Weaknesses of bank of america 7 Opportunities of bank of america 7 Threats of bank of america 8 Relevance of the SWOT Analysis on the Investment Decision 8 Internal and External Stakeholders of bank of america 10 The Needs and Wants of the Shareholders 11 How Does bank of america Fulfill the Needs of Its Shareholders 11 Conclusion 13 References 14 Introduction bank of america Corporation is one of the major leading financial organizations in the world....
9 Pages (2250 words) Essay

Bank of America: Merrill Lynch

This assignment will discuss about the e-CRM business operation strategy that has been adopted by bank of america Merrill Lynch in the business processes.... bank of america: Merrill Lynch (e-CRM) Table of Contents Introduction 3 Strategic Context 4 Company Initiative 7 Results/Conclusions 9 References 11 Introduction bank of america Merrill Lynch is recognized as the investment and corporate banking division of the parent organization i.... hellip; bank of america....
8 Pages (2000 words) Essay

Bank of America Acquisition of Merrill Lynch

Before its acquisition by bank of america, Merrill Lynch was an organization that mainly focused on brokerage, investment banking (Matthew, Carrick and Dan 12).... hellip; Given the strength of the US economy, Merrill Lynch had a strong and stable customer base which it readily captured to its advantage as it engaged in the purchase of Bank of America Acquisition of Merrill Lynch Before its acquisition by bank of america, Merrill Lynch was an organization that mainly focused on brokerage, investment banking (Matthew, Carrick and Dan 12)....
2 Pages (500 words) Essay

How Does Bank of America Fulfill the Needs of Its Shareholders

This essay explores the SWOT analysis of the bank of america, internal and external stakeholders of bank of america and how does bank of america fulfill the needs of its shareholders.... hellip; This research will begin with the statement that bank of america Corporation is one of the major leading financial organizations in the world.... The bank of america principally functions in the United States, Latin America, Canada and Europe and employs over 288,000 people throughout the world....
8 Pages (2000 words) Essay

Evolution of the Bank of America

Probably the most important of these acquisitions and mergers was the merger between Bank America and Nations Bank, as well as the acquisitions of LaSalle Bank and ABN North America by bank of america (James & James 34).... Prior to attaining its present status, bank of america During the evolution of the bank of america, mergers and acquisitions have been an significant fragment of the bank.... Prior to attaining its present status, the bank was known as Nations Bank and only became bank of america when it made a deal to acquire Bank America in 1998....
2 Pages (500 words) Essay

Merrill Lynch and Organizational Strategy

The value around client focus or trust between the client and the company distinguished itself from the competitors and still instill the same value though it's been taken over by bank of america.... Much of the literature in recent months has concerned bank of america's acquisition of Merrill Lynch, and Merrill Lynch's exposure to subprime situations.... This work called  "Merrill lynch and Organizational Strategy" describes a variety of strategies and models in attempts to succeed and ideas of a global leader Merrill lynch....
6 Pages (1500 words) Essay

Consolidation of the US Banking Industry and Small Businesses

bank of america Corporation having the largest holder of domestic bank deposits with about $512 billion in domestic deposits and small banks account for 3 % of domestic deposits.... hellip; Arguments, whether the banking industry has taken a path of massive restructuring or has misconstrued value gains, does not conceal the fact that mere policy shift in capital structure drove up bank consolidation.... The age of industry consolidation in the US Banking industry can be described as a period (1979-1994) consisting continued bank consolidation with an extraordinary change in applied finance, information processing, technology, and derivative markets....
12 Pages (3000 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us