Merrill Brings a Lot of Baggage to BofA

He too worries about "capital and management resource constraints" as BofA integrates its July acquisition of failed mortgage lender Countrywide Financial, which is still reeling from soured mortgages and home equity loans after the meltdown of the housing market.

Under terms of the deal, which executives say came together in roughly two days, BofA will exchange 0.8595 shares of common stock for each Merrill Lynch common share. BofA is paying 1.8 times tangible book value, it said. The deal is expected to be completed in the first quarter.

Shares of BofA sank 20.5% on Monday to $28.83, making the price of the deal effectively cheaper. Merrill's stock surged 10.6% to $18.86.

Lewis said BofA has not asked for any "capital relief" as a result of the deal. The acquisition of Merrill would drop BofA's Tier-1 capital levels to roughly 7.40% and the company would look to build capital levels to its target of over 8% over time, "but that's done with almost every single acquisition we have done," he said.

BofA expects to achieve $7 billion in pre-tax expense savings, which will be "fully realized" by 2012, while the acquisition is expected to be accretive to earnings by 2010, it says.

"This is too important not to get right," Lewis said. "This is the strategic deal of a lifetime."

Still, Merrill's exposure to toxic assets is an ongoing concern. Merrill has taken roughly $30 billion in writedowns resulting in three consecutive quarters of losses, according to Oppenheimer analyst Meredith Whitney.