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Can Merrill make it out alive?

Posted Jul 29 2008, 02:02 PM by Todd Harrison
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One of the would-be good guys on Wall Street has now taken a hit to his reputation and maybe dropped the last bomb that could sink the Street. Merrill Lynch CEO John Thain was initially greeted as a savior. He was supposed to have all the tools and magic (and maybe even some snake oil) to save the world’s largest brokerage firm.

The job is on-going but going to be more difficult in spite of or because of news released last night: Merrill Lynch will attempt to raise $8.5 billion in new capital.

In order to pull this off the company went back to Temasek (Singapore), which will buy $3.4 billion of the new offering, expected to be as much as 200 million common share. Management is going to purchase 750,000 shares, too (I feel better already). Moreover, the company also sold mortgage backed assets with a notional value of $30.6 billion for $6.7 billion and will finance 75% of the purchase (Heck, I should have picked up some of that paper).

Thain has been pretty adamant that the company didn’t need to raise money. He battled analysts during the last conference call and dismissed persistent rumors the company needed to raise money. This latest round of money rising is going to be very expensive, resulting in a write down of $5.7 billion and other adjustments made to compensate Temasek for earlier investments at higher prices.

Merrill Lynch shares were down after the news but struggled to be up slightly, and in some bizarre fashion last night’s news will be viewed by many as a positive. I have to say, the last time anyone with this kind of flimsy financial creditability and track record was able to find lenders was the last wave of sub-prime housing loans.

I do believe Merrill is going to make it out of this malaise but the deterioration of trust between banks and banks, banks and analysts and banks and investors will make full recoveries years later than they could have if the industry had been straight out of the gate.

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Professor Charles Payne. For related analysis from Minyanville, see also:

Will Merrill Spur the Hurd?

Watch: Merrill Cuts Its Losses

Is Merrill Good or Bad?

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Comments

 

Hmmmmm,

Got anything to make feel warm and fuzzy?

Mikie Moon (Posted 07.29.08 4:28 PM)

I have no sympathy for Merrill, Bear Stearns, and all the other financial institutions that used their small customers deposits, floats, etc to raise cash to invest in questionable schemes without doing adequate due diligence just so they could score multimillion dollar commissions,etc-a modern day ponzi scheme motivated by one of the most base human traits-pure greed. and it's absolutely inexcusable for the Federal Gov't ie us to bail them out, but once again lobbyists & the good old boy system prevails. Remember, real change only occurs in crisis & it certainly appears we're headed that way.  

James P. (Posted 07.29.08 10:56 PM)

THE BANKS,FINANCIAL INSTITUTIONS,MORTGAGE COMPANIES AND INSURANCE FIRMS ALL DESERVE WANT THEY ARE KNOW GETTING.

MATT DRAKOS (Posted 07.30.08 12:00 AM)

I agree with James.  I was so disgusted with Merrill's behavior during the dot com boom that I will be happy to see them go under.  Good riddance.

Talia (Posted 07.30.08 12:03 AM)

In the Arab world we say “tomorrow the snow will melt and sh** will show”. Well, we all see it very clearly, and yet we put some more snow on it to make it look good still.

As Jack Nickelson said: “We can not handle the truth”

Mohammed (Posted 07.30.08 1:58 AM)

I used to work for those money grubbing blood suckers at Merrill when I was young and dumb.  They are getting just what they deserve.  I got out years ago (thank God).  Anyone still tethered to those inane soulless trolls needs to do the same.  All they care about is the almighty dollar so they are reaping what they have sown IMO.  

gardenqueen (Posted 07.30.08 6:52 AM)

I also worked for them, and Lehman Bros too. "'Money is the Root of All" was/is their motto.  Serves them right.

ex_broker (Posted 07.30.08 8:08 AM)

What do you expect?  Investment banks are going to be money-hungry, questionable-ethic entities.  I can't name a single one that plays by the rules so it's the nature of the business.  Those banks are a necessary evil, and should be regulated more heavily than what is currently being done.

jaded american (Posted 07.30.08 9:00 AM)

I, too worked for Merrill. The corporate culture was the worst. They had no concern for their employees and even less for the clients they served. Management was only in it for their bonuses and it was common to fire brokers so they could get the broker's book of business for another broker who had sold more of Merrill's proprietary products. What goes around, comes around. Karma is a ***. I hope it brings them down.

John (Posted 07.30.08 9:22 AM)

Anyone who is against free markets is a terrorist and terrorists hate free markets and democracy. Why in the world would the FED bail out these bums? Why would they engage in a terrorist act?

peter (Posted 07.30.08 9:26 AM)

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