Bank of America Skips Lehman, Buys Merrill Lynch

Having reportedly backed out of talks to buy troubled bank Lehman Brothers, Bank of America was reported to have reached an agreement to purchase another major investment bank, Merrill Lynch. The deal is valued at $44 billion. Meanwhile, a consortium of 10 major banks agreed to create an emergency liquidity pool worth $70 billion to avoid further meltdown. The group is reported to include Bank of America, Deutsche Bank, Credit Suisse, UBS, Citibank, JPMorgan, Morgan Stanley, Goldman Sachs and Barclays.

As for Lehman Brothers, it looks increasingly likely they will declare bankruptcy. The International Swaps and Derivatives Association held a special trading session today allowing its member banks (218 in total) to begin squaring their Lehman-linked exposure. However, these trades will be void should Lehman somehow manage to avoid the worst case scenario, bringing substantial volatility to the markets. A bank holiday has Tokyo closed for trading today, meaning forex traders could have to wait until the London open to see the extent of what these developments will do to risk sentiment and the US dollar.

To read about how bank default risk could affect the forex market, CLICK HERE.