Over the past few years, one of Wall Street's favorite parlor games has been betting on who will buy Merrill Lynch ( MER).

At various times, speculation has centered on HSBC ( HBC), Bank of America ( BAC), Bank One ( ONE) and even Wells Fargo ( WFC).

Even though the bear market has taken a big bite out of Merrill's hide, it remains an attractive catch because of its huge retail brokerage operation, wealthy asset-management clientele and investment bank. At the same time, it's seen as needing a mate, because it remains a laggard in fixed-income trading and corporate lending.

But to date, while there's been flirting, there's been nothing close to a full-blown courtship.

Merrill, for now, appears dead-set against a merger, for a variety of reasons. Earlier this year, sources say, the nation's biggest brokerage rebuffed an overture from ING Group ( ING), the Dutch-based banking and insurance conglomerate, which is looking to build on the success of its ING Direct online bank.

Neither ING nor Merrill would comment. But an investment-banking source said ING approached Merrill about a possible deal sometime this year, and was rebuffed. Lawyers familiar with the talks said it was ING that broke off the negotiations.

Wing'd Chariot

Wall Street analysts say Merrill's coy mistress act shouldn't have surprised ING.

They say a deal is especially unlikely now, after Stanley O'Neal, the firm's chief executive and president, assumed the title of chairman, following the April retirement of David Komansky. It's a chance for O'Neal, who has been slashing payroll and expenses with vengeance for two years, to start putting his vision of a leaner and more nimble Merrill to work.

"I would bet my bonus that Merrill is not for sale," said Sanford Bernstein brokerage analyst Brad Hintz.

Hintz described the 51-year-old O'Neal as a "young man" whose actions aren't those of an executive who is looking to sell. He said the cost cuts at Merrill, which reduced the firm's workforce by 30% and were responsible for much of the firm's earnings growth last year, were designed to position Merrill for long-term growth and not just surviving the bear market.

In fact, there have been signs Merrill is preparing for an acquisition -- one in which it is the acquirer. The company recently filed a registration statement to sell $15 billion in debt and equity. The move led to market speculation a few weeks ago that Merrill might seek to acquire Knight Trading ( NITE), the Nasdaq trading firm. The brokerage also has said it is in talks with several banks about forming a joint venture to offer a Merrill-branded credit card.

The Cheap

From a valuation standpoint it also would seem to make little sense for O'Neal to put a "for sale" sign outside of Merrill's headquarters in lower Manhattan. Though the brokerage's stock has rebounded the past few months, at $43 a share it still trades some 44% below the price it fetched two years ago.

Additionally, Merrill's $40 billion market cap would be a tough pill for many potential suitors to swallow, especially since the broker would demand a hefty premium in a deal. Of all the U.S. banks said to have an interest in Merrill, only Bank of America, with a market cap of $111 billion, would seem to be in a position to even consider making a pitch for Merrill.

And any acquirer would also have to take on an unknown litigation risk, since Merrill is a defendant in numerous lawsuits stemming from last year's tainted stock research scandal and the Enron mess. Reilly Tierney, a Fox-Pitt Kelton financial services analyst, said acquiring Merrill could be a "huge risky move" until there's more clarity on Merrill's potential legal liability.

O'Neal also is mindful that other Wall Street mega-mergers have met with mixed success. The bull market pairing of J.P. Morgan and Chase Manhattan Bank and Credit Suisse First Boston's acquisition of Donaldson Lufkin Jenrette have yet to prove those combinations can work.

Touts

Still, it's easy to see why some on Wall Street like to engage in Merrill odds-making.

One reason is that Merrill -- along with its main rival Morgan Stanley ( MWD) -- is one of the few big brokerages not joined at the hip to a major commercial bank. And the conventional wisdom is Merrill will ultimately need a banking partner if it's going to stay competitive over the long haul with the likes of Citigroup ( C) and its Smith Barney brokerage operation. The flipside of that argument, of course, is that the nation's banks need to add a big brokerage to keep pace with Citigroup.

To some extent, the three-year bear has shown just how vulnerable Merrill is. In 2002, net revenue at the firm fell 15% from the prior year. That was worse than the 5% gain in net revenue at Citigroup or the flat year-over-year revenue at Bank of America. The revenue slump at Merrill was a bit worse than the 13% slide in net revenue at Wall Street rivals Goldman Sachs ( GS) and Morgan Stanley.

Much of the firm's success going forward is a bet on a strong revival in stock trading by its wealthy clientele and an uptick in investment banking. But there's no guarantee that will materialize in the near future. And if it doesn't, it could leave Merrill with no option but to sell to the highest bidder.

"O'Neal has done a good job trying to stabilize the place, but there is a structural shift going on on Wall Street," said David Hendler, an analyst with CreditSights, a research group. He said Merrill is in a bind because it's not clear that retail investors will flock back into the markets with anything close to the kind of vigor that they demonstrated during the late 1990s.

For now, it seems, Merrill and O'Neal are willing to gamble that they can go it alone, betting happy days will soon be here again.