Sources tell CNBC that Federal Reserve officials are pressuring BofA to do a Merrill deal.
Merrill faces a possible crisis of psychology, Gasparino says: short-sellers regard the brokerage as the next weakest investment bank after Lehman and the fallen Bear Stearns, which was sold at low-ball price in March.
"People are saying, 'Who's next on the list?"' says Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor in Cincinnati.
Short and non-short players alike have been watching Merrill Lynch shares lose about a third of their value this week — while peers Citigroup and Morgan Stanley shed just 2 percent and 4 percent, respectively. The decline is all the more remarkable because Merrill has a more diverse portfolio than Lehman, boats the largest brokerage sales force of any Wall Street firm and owns a piece of money manager BlackRock .
What You Were Reading:
By late Saturday night, CNBC learns that a deal has been drafted to acquire Lehman Brothers' bad assets and ostensibly pave the way for an eventual sale of the firm.