Merrill Brings a Lot of Baggage to BofA

As of the end of the second quarter, it still had roughly $91.3 billion of risk exposure in its trading book -- $1.6 of net Super Senior CDO exposure on its balance sheet, $7.5 billion of leveraged finance commitments, $17.6 billion in commercial real estate exposure, $43.7 billion in residential mortgage exposure and $18 billion in the U.S. bank investment securities portfolio, Whitney writes.

Thain did successfully navigate an agreement to sell roughly $30 billion of collateralized debt obligations to an affiliate of Lone Star Funds for $6.7 billion, or 22 cents on the dollar. Still, analysts are concerned about further mark-to-market adjustments the large investment bank could write down and how that will affect earnings at BofA.

The acquisition of Merrill Lynch "meets three of BofA CEO Ken Lewis' key requirements for acquisitions -- brand, scale and best-in-class franchise," Whitney wrote in the note, published early Monday. "While we view this clearly as a long-term positive for [Bank of America] the stock will likely not respond accordingly as investors near term will focus on greater systemic risk, and [Bank of America's] sizeable consumer loan exposure will overshadow any near-term positives in the deal."

Another regulatory issue that will have to be addressed is BofA's surpassing the 10% deposit market share limit for U.S.-based banks. Analysts say that federal regulators are likely to grant the bank an exception for the time being.

Some analysts are already looking on the bright side.

"BofA is integrating two very separate businesses," which require "two different skill sets," says Nancy Bush, an independent bank analyst in Annandale, N.J. For companies like BofA and JPMorgan Chase (JPM Quote) "acquisitions become just another skill set," she says. "It's like another line of business."