Friday, January 11, 2008

Will Merrill be Lynched?

JULIA WERDIGIER and JENNY ANDERSON are writing in the NYT that a Giant Write-Down Is Seen for Merrill, about twice the size it earlier predicted and "far" exceeding expectations.
The developments underscore the rising toll that the mortgage crisis is taking on many once-proud Wall Street banks. In recent months Merrill and several other firms have grabbed financial lifelines from wealthy foreign governments.

Mr. Thain, who won plaudits as head of the New York Stock Exchange, has wasted little time. After he took over last month, Merrill Lynch promptly sold a $5.6 billion stake to Temasek Holdings, which is controlled by the government of Singapore, and Davis Selected Advisers, a money management firm based in Tucson [don't they lynch bull thieves and other varments out there in the wild west?].

[H]e has said that Merrill is considering selling noncore assets like its stake in Bloomberg, the financial news and information company founded by Mayor Michael R. Bloomberg of New York.

Among other things, that means Merrill will now pay fewer bonuses based on individual performance and instead focus on the performance of a team [and employees will be pouring over the Personnel Manual to find the definition of that]. Many employees received bonuses this week that included a greater portion of stock than in the past.

In addition to seeking funds from outside investors, which heavily dilutes the stakes of existing shareholders, Merrill Lynch has sought alternative ways to raise capital. In December, it agreed to sell most of its commercial finance business, Merrill Lynch Capital, to General Electric, raising about $1.3 billion in equity.

Mr. Hintz, the securities analyst, suggested another option would be to reduce the firm’s fixed-income business by a third, which would add about $3 billion in capital.

He estimates that Merrill will write down its $27 billion of combined collateralized debt obligation and subprime-related exposures by $10 billion and report a loss of $5.10 a share for the fourth quarter. Any write-down above $20 billion, he said, would “significantly increase leverage and would threaten the credit ratings of the firm.”

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