Merrill Lynch (MER)

[HenryTo]

Option investors most bearish on the stock since July 1996. Company set to report earnings this Thursday:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3Zl9uRJmTUM&refer=home

[HenryTo]

Analysts looking for another $3 to $5 billion writedown from Merrill:

http://www.cnbc.com//id/25408465?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo

[HenryTo]

Looking for Merrill to divest its holdings in Bloomberg and BlackRock over the next couple of weeks as it seeks more cash for more projected write-downs in its upcoming earnings report in the middle of this month (exact time not supplied yet):
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Merrill considers Bloomberg, BlackRock sales: report
Mon Jul 7, 2008 2:22am EDT

Merrill Lynch & Co (MER.N: Quote, Profile, Research, Stock Buzz) is moving closer to selling stakes in financial firm BlackRock Inc (BLK.N: Quote, Profile, Research, Stock Buzz) and information provider Bloomberg LP in an effort to raise cash to make up for $6 billion in coming write-downs, the Wall Street Journal said Monday citing people familiar with the matter.

Merrill is likely to seek about $5 billion for its 20 percent stake in Bloomberg, a price lower than it might fetch in the open market, the paper said.

Bloomberg's right of first refusal over the stake sale could make it difficult to attract rival buyers, according to the paper.

Merrill is also likely to sit down this week with top officials from BlackRock, believed to be worth $12 billion, in which it owns 49 percent, the paper said.

If Merrill proceeds with a sale, it is likely that it will sell only part of its interest and try to maintain a strategic alliance with the firm, the people told the paper.

Merrill cannot sell its BlackRock stake before 2009 without the agreement of BlackRock's board, a condition ironed out when Merrill bought the stake in 2006 for $9.8 billion, the paper said.

Merrill, BlackRock and Bloomberg could not be immediately reached for comment.

[HenryTo]

Merrill down more than 7% in AH trading as write-downs came in on the high end of estimates:
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Merrill Lynch posts 2Q loss; Sells Bloomberg stake
Thursday July 17, 5:10 pm ET
By Joe Bel Bruno, AP Business Writer
Merrill Lynch takes heavy 2Q write-downs; Sells stake in Bloomberg for $4.4B

NEW YORK (AP) -- Merrill Lynch & Co. on Thursday reported a $4.9 billion loss amid massive write-downs from soured mortgage positions and other risky investments, and unveiled plans to raise money by unloading assets.

The world's largest brokerage posted its fourth straight quarterly loss as it struggles to shore up a balance sheet battered by the global credit crisis. Merrill Lynch took $9.4 billion of charges and write-downs from mortgage-backed securities, unprofitable hedge positions, and residential mortgage exposure.

The new charges come on top of nearly $29 billion in write-downs that the New York-based brokerage had already taken because of tightening credit markets. Global banks and brokerages have been forced to take some $300 billion of write-downs in the past year.

Merrill also said it had reached a deal to sell its 20 percent stake in news and data provider Bloomberg LP for $4.43 billion, and is close to selling its controlling interest in Financial Data Services Inc. for upward of $3.5 billion.

"Our core franchise continues to perform well despite the extremely challenging market environment," John Thain, Merrill Lynch's chief executive, said in a statement. "Importantly, with the transactions we announced today, we are bolstering our capital base and continue to move forward on our risk management and strategic growth initiatives."

Merrill lost $4.89 billion, or $4.97 per share, after accounting for the payment of dividends for the three months ended June 30. That compares to a year-ago profit of $2.01 billion, or $2.24 per share. The broker reported negative revenue of $2.11 billion versus revenue of $9.46 billion a year earlier.

Shares closed up $2.73, or 9.8 percent, at $30.73.

[HenryTo]

We now know why MER tanked in trading today:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.qIMphkb5cA&refer=home

[Suomodo]

Very bad for the trust.... banks keep on saying .. we are done with capital raising .. two weeks later they raise..

This time managment is buying a lot .. We ll see.. At Merrill all is left are 9 bil
MBS written off to 30% of face value .... So its probably over ..

The best thing: the private equity guys got a loan for 75% of their purchase from ... Merrill..

[HenryTo]

The PE guys have been pestering the banks to sell their CDOs and other distressed "stuff" to them for months now at a discount with financing to boot. It now looks like they're getting their wish as the banks are capitulating - which should work out well for the market in the long-run as the debt moves out of the public eye and into stronger hands. This would also allow banks to make more loans and to focus on their core operations going forward.

[Rubedo]

Reuters) - Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) said on Monday it would raise $8.5 billion by selling new stock. But CEO John Thain has consistently denied that the investment bank would need to raise more capital. Here is a selection of comments by Thain or about his views since the end of last year:

December 24, 2007: "One of my first priorities at Merrill Lynch was to strengthen the firm's balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital." (December 24, 2007 -- Thain in a statement when Merrill announced a $6.2 billion capital raising)

January 15, 2008 "...These transactions make certain that Merrill is well-capitalized." (January 15, 2008 -- Thain in a statement after selling $6.6 billion of preferred shares to a group that included Japanese and Kuwaiti investors)

January 18, 2008 "We're very confident that we have the capital base now that we need to go forward in 2008." (January 18, 2008 -- Thain as quoted by the New York Times).

March 8, 2008 "...Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market." (March 8, 2008 -- Thain in an interview with France's Le Figaro newspaper)

March 16, 2008 "We have more capital than we need, so we can say to the market that we don't need more injections. We can confirm that we have tackled the problem." (March 16, 2008 -- Thain in an interview with Spain's El Pais newspaper)

April 4, 2008 "In 2007, we lost 8.6 billion dollars after tax, but we raised 12.8 billion dollars in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don't need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I'm sure we have enough capital." (April 4, 2008 -- Thain in an interview with Japan's Nihon Keizai Shimbun)

April 8, 2008 "We deliberately raised more capital than we lost last year ... we believe that will allow us to not have to go back to the equity market in the foreseeable future." (April 8, 2008 -- Thain to reporters in Tokyo, as reported by Reuters)

May 12, 2008 "John Thain has been very clear that we have sufficient capital and don't have a need to raise additional common equity for the foreseeable future. When we raised this capital in January, we had a lot of demand so we went beyond what we needed." (May 12, 2008 -- Merrill President Greg Fleming in an interview with the Times of London)

June 11, 2008 "Today on a pro forma basis we have about $44 billion of equity capital, which actually isn't very much below the all-time high that Merrill ever had. And our philosophy about this is that we are well-capitalized. We're comfortable with our capital position. We, like everyone else, are deleveraging our balance sheet." (June 11, 2008 -- Thain on a conference call hosted by Deutsche Bank)

July 17, 2008 "Right now we believe that we are in a very comfortable spot in terms of our capital." (July 17, 2008 -- Thain on a conference call after posting Merrill's second-quarter results)

July 21, 2008 Merrill Lynch & Co Inc said on Monday it would raise $8.5 billion by selling new stock.

[Rubedo]

http://bigpicture.typepad.com/

What Vintage Was That?
Posted by Barry Ritholtz on Tuesday, July 29, 2008 | 09:08 PM
in Credit | Derivatives

My last Merrill post until the next big writedown (or investigation / indictment):

The Merrill sale involved "U.S. super senior ABS CDO, the majority of which comprises older vintage collateral – 2005 and earlier."

2 0 0 5 !

How many "Vintages" might we have left? 2 0 0 6, 2 0 0 7?

I am curious as to how much more junk is throughout the financial system.

~~~

What Say Ye?


Actual Merrill CDO Sale: 5.47% on the Dollar
Posted by Barry Ritholtz on Tuesday, July 29, 2008 | 03:43 PM
in Credit | Derivatives | Mathematics | Valuation

An active trader pointed us to this very familiar looking off-balance sheet shenanigan found in the following paragraph regarding Merrill's CDO Sale.

Direct from yesterday's press release:

"On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. At the end of the second quarter of 2008, these CDOs were carried at $11.1 billion, and in connection with this sale Merrill Lynch will record a write-down of $4.4 billion pre-tax in the third quarter of 2008.

On a pro forma basis, this sale will reduce Merrill Lynch’s aggregate U.S. super senior ABS CDO long exposures from $19.9 billion at June 27, 2008, to $8.8 billion, the majority of which comprises older vintage collateral – 2005 and earlier. . .

Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction. The transaction is expected to close within 60 days."

Let's take this apart:

• Merrill appears to be moving $30.6 billion dollars of bad paper off of their books.

• This paper was carried at a value of $11.1, meaning there was almost $20B in prior related write downs.

• After this transaction, Merrill’s ABS CDO exposure in theory drops from $19.9 billion to $8.8 billion (hence, the $11.1B number).

• The $6.7B purchase price relative to the $30.6B notational value is 21.8% on the dollar

However:

• Merrill is providing 75% of the financing –- and MER’s only recourse in the event of default is to retake the CDO paper back from the buyer.

• While Merrill hopes to be made whole, the reality is they still have potential exposure to these ABS CDOs via the financing;

• Actual sale price = 5.47% on the dollar

Less than five and half cents on the dollar? That's an even cheaper sale than originally advertised.

What this transaction actually accomplishes is getting the paper -- but not the full liability -- off of Merrill's books.

How very Enron-like !

[Suomodo]

Its absolutely crazy...

What default rate would have to be there to justify 79% discount on this paper ?... Third world war with carpet bombing of all US cities wouldnt do the job!!!!

So those PE guys did a deal of their lives... with 4x leverage they make maybe (correction): 1600-2000% -16-20x initial investment (10-40% default rate with recuperation of at least 50% of the home values) over the next couple of years... and thats even the worst case scenario

The bad thing about it ... Merril doesnt expect an intervention or other buying interest in MBS market soon, other wise they would wait... or they are just in such a bad shape with something burning...

[HenryTo]

Merrill has been holding the paper for months now and I guess they finally capitulated. They have no business holding the paper in the first place since they have practicially no investment management expertise. All their (mostly underperforming) funds were sold to BlackRock. BlackRock has also started some distressed debt and distressed mortgage debt funds but they are definitely not utilizing much (if at all) leverage in those portfolios.

The markets liked the move so we should see the likes of Citigroup and UBS doing the same thing in upcoming weeks - assuming that other private equity or distressed debt funds get the prices and financing terms that they want.

Most likely, Lonestar got bottom pricing - no one knows the ultimate default/recovery rates of these CDOs since the majority of the underlying mortages would take years to pay down. Assuming the US doesn't enter a severe recession and assuming home prices stop declining by this time next year, Lonestar should make money on these CDOs.

[rffrydr]

http://ftalphaville.ft.com/blog/2008/07/30/14812/merrill-chart-du-jour/
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Today is the Tomorrow you worried about Yesterday!

[texfly101]

interesting that MER's hybrids are gaining in price...someone likes them...dj
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dj

[lewie2004]

according to dougie kass there is a rumor of 16 million shares available tonight on a S&P intra-reweighting. any thoughts???