Can Merrill make it out alive?
Posted
Jul 29 2008, 02:02 PM
by
Minyanville
Rating:
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?
