UPDATE 1-Bank of America to buy Merrill for $50 bln

(Rewrites, changes dateline, adds background and quotes)

By John Poirier and Elinor Comlay

WASHINGTON/NEW YORK, Sept 15 (Reuters) - Bank of America Corp (BAC.N) said it agreed to buy Merrill Lynch & Co Inc MER.N in an all-stock deal worth $50 billion, snagging the world's largest retail brokerage after one of the worst-ever weekends on Wall Street.

The deal came after tense negotiations over the fate of Lehman Brothers Holdings Inc LEH.N, which triggered concern that market participants would lose faith in other investment banks. Lehman said early on Monday that it would file for Chapter 11 bankruptcy protection.

"It catapults Bank of America into positions of strength in three businesses where they were weak," said James Ellman, portfolio manager at hedge fund Seacliff Capital.

"Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world," Ellman said.

Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.

The bank is buying about $44 billion of Merrill's common shares, as well as $6 billion of options, convertibles, and restricted stock units.

Bank of America said it expects to achieve $7 billion in pretax expense savings, fully realized by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.