Bank of America dumps Lehman, sniffing Merrill

Reuters reports that Bank of America (NYSE: BAC) just announced it was withdrawing its interest in Lehman Brothers Holdings Inc. (NYSE: LEH) -- likely sealing Lehman's fate. But it is still interested in buying an investment bank. Now, the Wall Street Journal reports, Bank of America is in pursuit of Merrill Lynch & Co., Inc. (NYSE: MER).

As I posted earlier this afternoon, Bank of America's decision to dump Lehman increases the odds it will file for bankruptcy. But the Journal writes, "Bank of America and Merrill Lynch & Co. Inc. are in merger discussions, according to people familiar with the matter. Much remains uncertain and conditions were fluid."

That is an understatement. But Merrill could be a difficult bull to swallow. As I posted, it has salable assets worth $40 a share and is currently trading at $17. But nobody seems to know how much Merrill's liabilities would subtract from that $40 a share. And when Bank of America is done looking at Merrill, it could reach the same decision it did with Lehman.

Update. DealBook reports that Bank of America could offer $25 to $30 a share for Merrill -- a big premium -- and the deal could be closed by tonight. If so, that would be great news in my humble opinion.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.