Wall Street Manna

An irreverent look at Wall Street

Thursday, September 18, 2008

Mother Merrill needs to be bought!

Bank of America's Ken Lewis was ridiculed for buying Merrill Lynch (MER 22.06). Who is laughing now?

Let's do the math. Bank of America should easily run to 37 on this move. You can't short it, and that applies across the pond and over here. Bad loans are being taken off the bank's balance sheets. So what's not to like with this deposit base?

With no bad loans, even Wachovia is a steal, and the Morgan Stanley/Wachovia merger is now given a green light. Thus if the market will now smile on that, what will they think of the Merrill Lynch/BofA combo.

It will be embraced wholeheartedly.

Merrill shareholders get .86 of a BAC share. 37 x .86=31.82. Now this number is trading at a discount that is not warranted, given the new events now unfolding on the street.

And the cheapest way to play this is with the October options, specifically, the 24 and 25 calls. They are only at 1.4, and 1.25 respectively. The 24's are cheaper than they should because option traders just buy the traditional strikes.

You have an option expiration squeeze, and a weekend squeeze when the Government bail-out plan gets announced. And you have a squeeze on all the jokers laying out shorts.

And you just might have another of the banks that didn't want a brokerage firm to second guess their opinion formed in the climate of fear.

Mother Merrill will massacre those shorts that are layed out against it.

If fact, she'll pole-axe them!

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