Bank of America takeover ends Merrill's independence

By Jonathan Stempel and Elinor Comlay

NEW YORK (Reuters) - Bank of America's $50 billion (28 billion pound) acquisition of Merrill Lynch would mark the end of a storied name in American finance, but create the nation's biggest bank by far.

Investors soured after the merger was announced early Monday, worried it magnifies Bank on America's exposure to risky debt in a fragile economy, less than three months after the bank acquired mortgage giant Countrywide Financial.

"There is a lot of mistrust out there that the deal will go through at the announced price," said Chip Hanlon, president of Delta Global Advisors Inc in Huntington Beach, California.

Bank of America stock dropped 21.3 percent, ending down $7.19 at $26.55, and wiping out $33 billion of market value. Merrill rose 1 cent to $17.06, despite being valued in the all-stock merger at $29 each, a 70 percent premium to Friday's close.

A purchase would end the 94-year independence of Merrill, Wall Street's third-largest bank, and pair it with a banking behemoth that has announced more than $150 billion of acquisitions in the last five years. Bank of America would pass Citigroup, the largest bank by assets, in size.

"There's some concern they might have bit more than they could chew," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

Monday's merger deal came together in less than two days -- after Merrill Chief Executive John Thain called Kenneth Lewis, his counterpart at Bank of America, to propose a combination.

This came as Thain, other industry executives and U.S. Federal Reserve officials huddled in emergency meetings in downtown Manhattan over the weekend to mull the fate of Lehman Brothers, Wall Street's fourth-largest investment bank. Lehman filed for bankruptcy protection Monday.