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Merrill continues to bumble along

Posted Oct 24 2007, 07:28 PM by Matt Koppenheffer
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The earnings announcement from Merrill Lynch found few friendly ears on CAPS. The company, which just three weeks ago revealed that it would be writing down $4.5 billion in loans, said, "Whoops, we actually meant $7.9 billion!"

I mean, come on Stan!

CAPS All-Star InvestorDeb summed it up really well:

Stan O'Neil bought a subprime lender at the top of the market. That's the good news...
The Oct. 5 pre-announcement was just WRONG at best, and DECEPTIVE at worst. Today, his comments on the conference call ruined the company's credibility, raising the question: are those running this company liars or just inept?
Would you want a company run by either?


Sounds like something I might say… Oh wait, I did! 

The problem now for investors is it's going to be tough to know what exactly to believe coming out of this company. Is $7.9 billion now potentially an overestimate of losses? Could there be another few billion that they've still forgotten about? Do they have any idea how to remedy losing $7.9 billion dollars in the first place?

Some may be starting to salivate as Merrill's price continues to drop, but to me even a cheap stock isn't worth much if you can't trust management.

(Full disclosure: I do not have a financial position in any of the companies mentioned.)

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Comments

 

Things May Not Be As bad as They Seem

I was recently thinking about my real estate investments and the current housing slump.  But I wonder, are things really as bad as everyone as saying or are the losers getting a lot of press.  This is an important question regarding what to do now.

We here a lot about the losses of lenders and banks, but wait a minute here.  In most every real estate transaction there is a buyer and a seller.  The banks financed the buyers who can't pay there mortgage but at the same time there are a lot of sellers who held property three or four years before the current debauchle and they made huge profits.  I made big profits, but unfortunately I was still holding real estate when the market turned and I have now endured a huge paper loss in relation to my income.  But when I bought the seller made a nice profit.  One of the executives at Wells Fargo said he knows there's still a lot of money on the sidelines waiting for the right time to invest.  

The relevance of this question is that current policies that restrict investment such as getting rid of stated loans and requiring high down payments whereas there used to be 100% financing is only exascerbating the problem and keeping inventoris unsold.  In addition to rate cuts lender guidelines need to loosen up so that the people who used to buy can still buy.  If lending criteria remains too tight due to banks being scared of what happened were going to be stuck in this mess.  lending should probably not be as loos as it once was, but don't go overboard with laws and rules that restrict lending and buying because those who sold at the right time are sitting on a lot of cash and we need them to clear the inventory of houses that are backing up.  Overregulation will prevent this.  

Adam Smith (Posted 02.14.08 2:50 PM)

Lessons from this mess: 1) Americans are in debt up to their eyeballs and are far poorer than they thought over the past 15 years. 2) our alleged prosperity over the past 15 years has been fueled (exclusively?) by consumer spending. That is,  consumer credit card debt. 3) the chickens are coming home to roost and the sky really is falling on those poor folks  who have a TVs, big cars, a huge home and no savings!!!! AND THEY DESERVE IT!

Tom Ryan (Posted 03.17.08 5:47 PM)

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