BofA's CEO sees investment banks merging with banks

NEW YORK (Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research) Chief Executive Kenneth Lewis said on Thursday the U.S. economic downturn will encourage, or force, more investment banks to merge with commercial banks to better protect themselves against tough capital markets.

According to prepared remarks for a business school graduation ceremony at New York University, Lewis said that other stand-alone finance companies, such as mortgage lenders or credit card companies, will also likely look to sell themselves.

Investment banks tend to secure most of their financing in capital markets, including short-term bond markets, and until March had not been able to borrow directly from the Federal Reserve.

When panic spreads in financial markets, investment banks can have trouble funding themselves, a problem that forced Bear Stearns Cos BSC.N to agree in March to sell itself to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research).

"...the stand-alone investment banks of Wall Street will become a rarer breed," according to Lewis' prepared remarks for the Stern School of Business ceremony.

This trend does not necessarily mean Bank of America is looking to buy an investment bank.

Last October, Lewis said Bank of America would likely exit some investment banking businesses, after losses from capital markets and trading soared.

"I've had all of the fun I can stand in investment banking at the moment," he said at the time. In January, the bank set plans to cut 650 corporate and investment banking jobs, on top of 500 jobs cut in late 2007.

The major remaining U.S. investment banks include Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research) and Lehman Brothers Holdings Inc LEH.N.