Dec. 5 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis’s takeover of Merrill Lynch & Co., the capstone of more than $100 billion in acquisitions he’s made since 2001, may prove the hardest to digest.

Lewis, 61, called Merrill “the ideal long-term fit” when the deal was announced on Sept. 14. He will generate fees from Merrill’s 16,850-strong sales force and says he can slash $7 billion of costs with the combination, approved by shareholders of both firms today and likely to close by the end of the month. The firm’s $2.8 trillion of assets would vault it over Citigroup Inc. and JPMorgan Chase & Co. as the No. 1 U.S. bank.

Bank of America shares have dropped 43 percent since the all-stock purchase was struck, and Merrill is down 24 percent, valuing the $50 billion deal at $19 billion. Citigroup analyst Keith Horowitz wrote Dec. 2 that the firms may have combined writedowns of $5.1 billion in the fourth quarter and had $56 billion of “high-risk” assets at the end of September.

“There are some hand grenades on the balance sheet that are going to blow up on Bank of America,” said James Ellman, a former Merrill Lynch money manger who is now president of San Francisco-based SeaCliff Capital LLC. “The cost savings are going to be nowhere near what they’ve already promised.”

Cloudy Forecast

The sagging economy has also hurt. Three months after striking a deal with John Thain, CEO of New York-based Merrill, on the same weekend that Lehman Brothers Holdings Inc. sank into bankruptcy, Lewis said on Dec. 3 that his own bank’s outlook was too optimistic.

“If someone had told me a year ago that things would be worse in December 2008 than in December 2007, I would have thought that person was half crazy,” he said at a conference in Charlotte, North Carolina, the bank’s hometown. Lewis doesn’t expect a recovery until the second half of 2009.

U.S. companies slashed payrolls at the fastest pace in 34 years last month, the Labor Department said today. The jobless rate rose to 6.7 percent, the highest level since 1993. Bank of America shares gained 90 cents to $15.25 at 4:01 p.m. in New York Stock Exchange composite trading.

Merrill, founded by Charles Merrill in 1914, went public in 1971 and in 1974 introduced its corporate logo -- a bull. Thain, 53, a former Goldman Sachs Group Inc. banker and New York Stock Exchange head who replaced CEO Stan O’Neal following $2 billion of losses, struck the deal with Lewis to avoid becoming another casualty of the subprime crisis. Thain will oversee corporate and investment banking and wealth management, making him a potential successor to Lewis. Thain won’t be on the board, Lewis said today.

‘Death of a Friend’

A merger was one of “few options that will allow the company to continue its operations,” proxy adviser RiskMetrics Group said in a Nov. 24 report.

“It’s really like the death of a friend,” said Winthrop Smith Jr., 59, a former head of Merrill’s international brokerage and the son of a former Merrill CEO, who attended Merrill’s shareholder vote in New York. “Its greatest legacy was bringing Wall Street to Main Street. They really democratized investing.”

Bank of America spokesman Scott Silvestri declined to comment on whether the firm will retain the Merrill logo. People familiar with the company’s plans said in October that Bank of America plans to keep the Merrill brand. Shareholders of Merrill endorsed the plan at a meeting in New York, and Bank of America shareholders approved it in Charlotte.

Mum on Bonuses

Lewis said he has “nothing to do with” Merrill’s plans to award bonuses to its employees, a Wall Street practice that has attracted criticism this year as the credit crisis worsened.

Executives including Rick Wagoner of General Motors Corp. and Ford Motor Co. CEO Alan Mulally have agreed to work for $1 a year. Asked by a shareholder whether he would agree to work for $1 a year for the next three years, Lewis replied, “No.” He noted that Bank of America earned $5.8 billion during the first nine months of 2008.

Bank of America, already the nation’s biggest home lender and home-loan servicer, will become the largest brokerage firm in addition to being the biggest bank by assets. Now second to JPMorgan by deposits, the new firm may end up the No. 1 by that measure once Merrill’s deposits are added.

The chief draw for Lewis was Merrill’s brokers, who manage $1.6 trillion for customers. Merrill said last month that 99 percent of its top-selling brokers agreed to sign retention packages.

‘Thundering Herd’

Wrapping together a sales force nicknamed “the thundering herd” with Bank of America’s 247,000 employees won’t be easy, said Greg Donaldson, director of portfolio strategy at Donaldson Capital Management in Evansville, Indiana, which manages about $350 million.

“The bankers all think the brokers are too highly paid and the brokers all think the bankers don’t work hard enough,” said Donaldson, who holds Bank of America shares and formerly worked at the retail brokerage unit of National City Corp.

While many of the top-performing brokers at Merrill will stay, others won’t be so lucky. Thain said in October that “thousands” of jobs would be cut. Richard Bove, an analyst at Ladenburg Thalmann Inc., said in October that Merrill may eliminate 10,000 jobs after the merger.

Lewis’s acquisitions include the purchase of FleetBoston in 2003 for $48 billion and credit-card issuer MBNA Corp. for $35 billion in 2006. Bank of America became a leader in home lending and credit cards after buying Countrywide Financial Corp. Lewis said in Charlotte that card-borrowing is likely to decline as consumers pull back on spending.

“The companies he’s been acquiring all make sense strategically,” Ellman said. “But the timing and price almost always seems to be off.”

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net

Last Updated: December 5, 2008 16:26 EST