Executives at Merrill Lynch have yet another reason to hate their marriage with Bank of America: much lower bonuses.

Bank of America (BAC), facing mounting legal liabilities and a sharp decline in its share price, is looking to preserve capital by dramatically slashing 2011 year-end bonuses in its investment bank--formerly known as Merrill Lynch--by as much as 40% from the prior year, senior people at the firm tell the FOX Business Network.

BofA announced its purchase of Merrill Lynch during the dark days of the financial crisis in September 2008, and at the time, the deal was seen as a lifesaver for Merrill and its employees. Like Bear Stearns and Lehman Brothers, customers and creditors were leaving Merrill in droves amid mounting losses stemming from the firm’s exposure to toxic mortgage debt.

Then-chief executive Ken Lewis purchased Merrill in a deal valued at $50 billion just weeks before Merrill announced a massive loss for the fourth quarter of 2008.

But for most of the past three years, it’s been Merrill Lynch that has been the one bright spot on BofA’s balance sheet; overall, the bank's earnings have sputtered and its legal liabilities have grown. Merrill’s traders, bankers and brokers have contributed substantially to the BofA’s bottom line despite an uneven third quarter, in which the Merrill unit lost money.

Shares of Bank of America have declined nearly 60% over the past year, and now Merrill executives at the combined firm are fuming as they’re getting their first taste of what it’s like to work at what’s generally viewed as the most troubled bank on Wall Street.

Wall Street executives get the majority of their compensation in the form of a year-end bonus, and according to people inside the firm, the fixed-income department will be hardest hit, with bonuses on average declining 60%.

Bonuses in the equities division are expected to decline 40% and those handed out to executives in the private-client group, or Merrill’s “thundering herd” of brokers, will decline around 17%.

A BofA spokesman didn’t return telephone calls for comment.

In the past, bonuses such as those likely to take place at BofA might prompt a mass exodus from the firm, but not this year. New financial reforms have forced banks to ditch once-profitable lines of businesses, and other banks are slashing year-over-year bonuses as well.

Morgan Stanley (MS)  chief executive James Gorman has already warned some executives that they should expect no bonus this year.

Charles Gasparino joined FOX Business Network (FBN) in February 2010 as Senior Correspondent.