How to Cover Wall Street

Antitrust regulators at the US Justice Department signed off on Bank of America’s $34.9 billion dollar acquisition of Merrill Lynch & Co. this morning. But there was little to celebrate as Merrill announced a $7.5 billion-dollar loss in the third quarter, the fifth straight loss since the fourth quarter of 2007.

Though Merrill has retains its cache as the world’s largest brokerage, a laundry list of that firm’s losses suggest that Bank of America’s  “golden egg” may, in fact, be a lemon. The big question is whether or not Bank of America will demand that Treasury guarantee its investment in Merrill in order to keep the purchase on track.

On Monday, Treasury guaranteed Mitsubishi UFJ’s investment in Morgan Stanley. The move kept the Japanese bank from walking away from the deal.  The move placated Mitsubishi UFJ. But, now that there is a precedent for government intervention, domestic banks such as Bank of America may be the next to queue up to Treasury with cap in hand.

Merrill, one of the most well-publicized casualties of the sub-prime mortgage fallout, has been hemorrhaging money since October 2007, when the firm posted a $9.8 billion loss in the fourth quarter of that year. The downward slide continued into the first and second quarters of 2008 as Merrill announced $6.6 billion in total write-downs for that period.

Merrill’s bad news comes on the heels of a 5 percent drop in earnings per share for the Charlotte, NC – based bank. But the deal, which is slated to close in the first quarter of 2009, is still on the rails.