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Why I Dumped Bank of America

Just before the market close on Tuesday, I sold Bank of America (BAC - Get Report), a client holding since 2003. It had been my only U.S. financial stock, and I targeted it at 3% of the portfolio.

The company has been a good proxy for domestic financial shares during good times and bad. It also has paid a healthy dividend. I viewed the stock as one to buy and hopefully hold forever.

The reason I got out is my lack of faith in big mergers. History is replete with big, and even not-so-big, mergers that did not work out, AOL-Time Warner perhaps being the most infamous.

When news broke that Bank of America was buying Merrill Lynch (MER), I knew I would be selling in short order, simply because of the big mergers don't work concept, but there are some common-sense issues with the merger itself that are important.

The obvious question is the timing. Why didn't Bank of America wait a day? Clearly Merrill Lynch would have fallen with the market on Monday, and BofA could have offered the same 50% premium on a much lower price. Bank of America CEO Ken Lewis implied that the deal may not have been there 24 hours later, noting the potential for other suitors to come in with bids. I'm not sure who else could pony up tens of billions of dollars to take on risk that might not be quantifiable.

Further, the notion that proper due diligence could be completed between Saturday morning and Sunday night is difficult to fathom. The impression was given that the companies knew each other fairly well, which seems reasonable, but in considering how quickly things have been changing in the sector from week to week, a 36-hour turnaround for a $50 billion deal seems short, considering that BofA's market cap was $134 billion at the close on Tuesday.

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