Bank of America's Lewis Says Merrill Deal `On Track'

By Alex Ortolani and David Mildenberg

Nov. 18 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis said he will complete the takeover of Merrill Lynch & Co. by the end the year, quashing speculation the $19 billion purchase may come undone.

The acquisition is ``on track,'' Lewis, 61, told reporters after a speech at the Detroit Economic Club today. Shares of Merrill jumped more than 5 percent from their low of the day after his comment.

Lewis, already the nation's biggest home lender and credit- card issuer, is adding Merrill's brokerage business while deploying $25 billion in federal funds designed to thaw frozen credit markets. As his bank's shares hover at a 13-year low, he said the economy won't rebound anytime soon, saying the gross domestic product isn't likely to expand until late next year and that credit-card losses will probably reach a record.

``We won't see a real turnaround until the core problem -- housing -- reaches a bottom, stabilizes and turns the corner,'' Lewis said in Detroit. Charlotte, North Carolina-based Bank of America became a leader in home lending and credit cards after buying Countrywide Financial Corp. and MBNA Corp. Lewis said the Federal Reserve will probably cut interest rates by a half percentage point at its December meeting to spur growth.

China Construction

Lewis' expansion isn't limited to the U.S.: Yesterday, Bank of America announced plans to almost double its stake in China Construction Bank, a step that will cost $7 billion. That decision drew criticism from analysts, who said the bank should retain capital to shoulder mounting loan losses.

Bank of America began investing in China Construction three years ago and ``didn't think we should stop it'' because of the federal government funding, Lewis said. Bank of America received $15 billion, and Merrill got $10 billion, as part of the Troubled Asset Relief Program, known as TARP. The bank said yesterday it didn't use TARP funds for the China investment.

Some homeowners who can pay mortgages are trying to take advantage of Bank of America's efforts to modify as many as 400,000 mortgage loans to keep borrowers in their homes, Lewis said. ``These are emergency assistance programs, not an attempt to rewrite every mortgage on the books.''

Lewis also called for more conservative mortgage lending, including requiring larger downpayments and fewer short-term ``teaser'' interest rates. Lenders should hold more loans rather than selling them to the secondary market, which Lewis said ensures greater responsibility for relations between the bank and borrower.

The banker also urged a limited role for Fannie Mae and Freddie Mac, urging more reliance on private industry. The government needs ``some limited role'' to ensure liquidity, he said.

Shares of Bank of America rose 1 percent to $15.19 at 4:10 p.m. in New York Stock Exchange composite trading. Merrill Lynch declined 3.2 percent to $11.40.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.netAlex Ortolani in Southfield, Michigan, at Aortolani1@bloomberg.net