Is Bank of America too big?

The New York Times reports that following its acquisition of Countrywide and Merrill Lynch & Co., Inc. (NYSE: MER), Bank of America (NYSE: BAC) may well be the dominant U.S. bank. Will that make it too big to fail in the years ahead? Or is it likely that when the economy recovers, it will have the strongest operation in place to grab a big share of that growth.

Its recent purchases indeed give Bank of America a strong market position in many segments of the financial services market. "Overnight, the shotgun merger will transform Bank of America into the nation's largest player in wealth management. It already holds the biggest branch network and is the largest issuer of credit cards, home equity loans and auto loans. In January, it paid $4 billion for Countrywide Financial, the troubled lender that was the nation's largest mortgage lending and payment collection operation," writes the New York Times.

With big acquisitions can come big risks. For example, Merrill still has plenty of problems with "$40 billion of real estate mortgage investments and $17 billion in commercial buildings," according to the Times. As I posted, Merrill had $40 a share worth of salable assets and Bank of America's $29 a share price effectively valued its liabilities at $11 a share. I admire the strategic boldness of Bank of America buying up market leaders at what may look in the future to be distressed prices.

But it remains to be seen whether those distressed prices were in fact too high because the liabilities Bank of America bought may turn out to be bigger than it gambled. If not, and if the economy recovers, Bank of America would be a screaming buy.

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.