Bank of America may buy Merrill Lynch: reports

The Bank of America negotiating with investment banker and financial adviser Merrill Lynch to buy the company, U.S. media reported on their websites Sunday.

The New York Times said the takeover could be done for about $38 billion US, while the Wall Street Journal said the deal might be worth more than $40 billion.

No official sources were credited in the reports, but an announcement is possible Sunday evening, the Times said.

The Bank of America was cited in earlier reports as a possible buyer of another New York investment bank, Lehman Brothers, but decided against the purchase.

The Bank of America, the second-largest U.S. bank by asset size, walked away from the Lehman deal because the U.S. government wouldn't ante up any money, the Times said, based on interviews with people close to the situation.

Both Lehman Brothers and Merrill Lynch have been hurt by the mortgage meltdown in the U.S., although Merrill appears to be in much better financial shape.

Insurer American International Group (AIG) is also planning a major restructuring, reports said. It needs up to $40 billion to cover real and potential losses on derivatives and subprime mortgages.

The stock prices of all three companies have taken a beating, as investors have lost confidence in the firms' ability to manage the financial turmoil.

AIG stock began last week at about $24 a share, and ended at $12.14. Merrill stock has fallen 68 per cent in the past year,closing at $17.05 on Friday. Lehman stock closed at $3.65, down from a 52-week high of $67.73.

Merrill describes itself asaleading wealth management, capital markets and advisory company, with offices in 40 countries and territories.

It lost$4.7 billion in the second quarter, compared with a $2.1 billion profit in the 2007 second quarter, and expects to record a pretax write-down in the third quarter of about $5.7 billion.

It has been selling assets to strengthen its balance sheet, including its 20-per-centshare ofthe Bloomberg news service for$4.4 billion.