I swear Merrill just wrote down $9.4 billion and sold its stake in Bloomberg two weeks ago. So why are they in the news AGAIN writing down another $5.7 billion? It’s frightening to think this company is still a going concern. The company has written down more than the $42 billion it had in total shareholder’s equity at this time last year – ( ). If Merrill Lynch hadn’t raised tens of billions in capital, they would have gone bankrupt long ago. At one time, this is the firm everyone on Wall Street wanted to be — ‘Magnificent Merrill‘ as the Economist called them 13 years ago. Now, look at them. Breathtaking.
Merrill Lynch & Co. said it will record $5.7 billion of pretax writedowns in the third quarter because of additional losses on the sale of collateralized debt obligations and hedging contracts with bond-insurers including XL Capital Assurance.The New York-based firm said today in a statement that it plans to raise $8.5 billion by selling shares in a public offering. Temasek Holdings, the Singaporean government investment fund that already is one of Merrill’s biggest investors, will buy $3.4 billion of stock in the offering, Merrill said.
Merrill Chief Executive Officer John Thain is pushing to rid the firm of its CDOs, which have contributed the majority of $18.7 billion of net losses reported over the past four quarters. Thain has had to raise capital to stave off credit- ratings downgrades and satisfy regulators that the firm can withstand losses.
I see this as a frightening development. Stan O’Neal lost his job for similar missteps at this last year after reporting a writedown in early October only to massively increase writedowns a few weeks later. Are things imploding that fast at Merrill? And who wants their shares — a massive $8.5 billion hole to fill?
The street should see this as a very bad omen of the future.