Bank of America's $50 billion (£28 billion) early-morning takeover of Wall Street investment bank Merrill Lynch creates the world's biggest financial services group.

It is a major coup for BoA chief executive Ken Lewis, who until late on Saturday was the front-runner to take over Lehman Brothers in the most turbulent weekend in Wall Street's history.

Bank of America is paying $50.3 billion for Merrill Lynch in an all-share deal, so will not have to fork out any cash. That was seen as crucial to the success of what is in effect a bailout.

Lewis said today: “Acquiring one of the premier wealth management, capital markets and advisory companies is a great opportunity for our shareholders. Together, our two companies are more valuable because of the synergies in our business.”

John Thain, chairman and chief executive of Merrill Lynch, said: “Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world.”

Bank of America said it expects to make cost savings of $7 billion by 2012, which implies that thousands of jobs are at risk. The deal will not be completed until early next year but BoA expects it to boost its earnings in 2010. Merrill Lynch, America's biggest stockbroker, has long had the nickname The Thundering Herd, with its logo of a bull pawing the ground.

It brings to BoA a huge investment banking business, more than 16,000 financial advisers and a 50% stake in fund management group BlackRock, which looks after $1400 billion of assets. BoA itself has $589 billion of assets under management.

Merrill is generally seen as the voice of America's army of small investors.Bank of America is the country's biggest retail bank with more than 6100 branches, and holds about 10% of the nation's savings. It is also the largest US credit-card issuer and residential mortgage provider.

Oppenheimer financial analyst Meredith Whitney said: “The Merrill acquisition meets three of Ken Lewis' key requirements for acquisitions: brand, scale and best-in-class franchise.”

Rohan Walsh, investment manager at Karara Capital, said: “I suppose Merrill being bought might be a good thing, going to stronger balance sheet. That's not necessarily a bad thing for the market. But Lehman is clearly creating uncertainty, and the market is very worried about AIG.”

Today's events mean that three out of Wall Street's top five firms have either failed or been taken over in the past six months. Bear Stearns was taken over by JPMorgan in a fire sale in March.