Credit crunch leaves 2 big lenders on the ropes

By Alex Gary

BusinessRockford.com

Two of the largest names in the financial sector, Lehman Brothers Holdings Inc. and Merrill Lynch & Co., were caught in the wave of losses from the subprime mortgage meltdown, and local experts believe more surprises are on the way.

“It’s definitely too soon to tell,” said Perry Randall, owner of Randall Wealth Management in Caledonia. “Market bottoms aren’t made in a day. It’s a process that we’re still working through.”

Talks by major financial institutions over the weekend to bail out Lehman Brothers Holdings Inc. and Merrill Lynch & Co. collapsed, forcing Lehman to file for bankruptcy protection Monday and Merrill Lynch into a $50 billion acquisition by Bank of America.

Lehman and Merrill had invested heavily in subprime mortgage-backed securities and ran into trouble when investor confidence collapsed. Lehman Brothers was unable to find a buyer. Bank of America stepped in quickly to take on Merrill.

David Casalena, senior resident director of the 13-employee Merrill Lynch office in Rockford, said joining Bank of America will create “one of the strongest and most diversified businesses in the world.

“Our clients will be unaffected and will only benefit from the synergies that these two global franchises provide.”

Nationwide, the announcements put investors in a sour mood. Fifty-seven of the 60 companies on the Register Star’s Star 60 stock index declined as well, including all five banking institutions.

Randall still believes that much of the overall economy is solid — he pointed to the decline in oil prices, a strengthening dollar and the strong cash position of most companies on the S&P 500 — but Rick Bastian, CEO of Beloit, Wis.-based Blackhawk Bancorp., had this to say Monday morning in the blog he writes for the Register Star:

“The government bailout of Freddie Mac and Fannie Mae didn’t bring order to the chaotic financial markets. And, I suspect, the bankruptcy of Lehman Brothers and the shotgun wedding of Bank of America with Merrill Lynch over the weekend won’t be the last epic events in a financial crisis of epic proportions.”

Lehman Brothers (LEH) closed down $3.44 to 21 cents on the NYSE, then lost 2 cents more in after-hours trading.

Merrill Lynch (MER) gained a penny to $17.06, then lost $4.25 in after-hours trading.

Bank of America (BAC) dropped $7.19 to $26.55, then picked up 22 cents in after-hours trading.

Reach Assistant Business Editor Alex Gary at agary@rrstar.com or 815-987-1339.

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