7/29 - "I thought we were supposed to believe that Merrill Lynch’s (MER) selling a part of its Bloomberg stake and by taking $40 billion of writedowns this year alone, investors were (almost?) out of the woods.
Guess again, news came overnight that Merrill will be selling more than $8 billion in new stock (read, diluting existing shareholders) at preferential terms to the Singaporean buyers of the last slug of stuck Merrill stuffed everyone with."
"I may sound angry, but come on, guys. I don’t even own the stock but this is the fourth share sale this year and all along, management has said that it has sufficient capital. This is not a great way to treat existing shareholders, and certainly not enough to engender enough trust to lure new investors off the sidelines."
7/29 - "First, there was the sale of $30.6 billion of toxic crap for 22 cents on the dollar ($6.7 billion). Merrill had already written this down to $11.1 billion, so that's only another $4.4 billion loss, but it comes only ten days after the firm said it had written everything on the balance sheet down to "market."...Second, Merrill is lending the buyer of the CDOs 75% of the money to buy them, and the only collateral for the loan is the CDOs. This means that although the CDOs are off the firm's balance sheet, it still has 75% of its original exposure to them. So that's another $5 billion the firm could still lose."
"Third, there is the horrifically dilutive equity deal. Eighteen months ago, Merrill's stock was close to $100. Three months ago, it was at $50. Merrill will sell this equity at about $25. That will leave existing shareholders (including me) owning about 75% of the firm."
"Merrill has now taken $46 billion of writedowns (and counting). It has sold a stake of Bloomberg worth $4.4 billion. And it has been forced to sell about a third of itself at firesale prices. That was some expensive mortgage gambling the firm did a couple of years ago."
7/29 - "Oppenheimer's Meredith Whitney notes this would reduce MER's CDOs exposure by $11.1 billion. While MER has significantly diluted existing shareholders, they applaud this purging of assets as an attempt to cut its losses and focus on stabilizing its platform and righting the franchise towards growth. While MER's stock still sells at a premium to book value and is expensive in firm's opinion, they believe the stock is getting closer to fairly valued levels as now the hardest work is behind the company."
"Deutsche Bank notes the move increases shares outstanding by est. 38% and reduces est. run-rate EPS from $4/sh. to $2.80/sh but also eliminates most of the worst vintage CDOs, gets cash up front from monolines (vs. waiting 20-40 yrs.), and keeps book value around $22/share. DB is lowering their price target from $31 to $28 but keeping their Hold rating given an inexpensive valuation...They apply a target multiple of 1.2x to their 2009E book value of $23."
"Citigroup says that in their view the Merrill franchise has a tremendous amount of earnings power that can be unleashed over time through execution. While the real promise of the new management team at Merrill is the potential to unlock this earnings power, the legacy assets proved to be a year-long detour, but that is now behind us...Reiterates Buy and $45 tgt (down from $65 due to dilution) as they expect the sale of highly illiquid mortgage related assets to be a catalyst to refocus on the earnings power of the Merrillfranchise. The overhang that has plagued MER for over a year has finally been removed. Furthermore, the capital raised enhances the quality of Merrill's equity base by significantly reducing the preferred component in exchange for straight common equity."
7/31 - "You really can fool all of the people all of the time (or so it would seem). Writedown after writedown, lies and more lies: and yet, Wall Street believes in the Investment banks. The DJIA was up over 266 points yesterday!...Fool me once, shame on you. Fool me ten times, shame on me." Investors just don't seem to get it yet."
"Yesterday, a further $ 8.55 billion stock sale was announced, including a stock sale to Temasek (an investment company of the Government of Singapore)...Thanks to a downside protection clause, Temasek will be compensated for the nearly 50% loss suffered on their December 2007 ‘bailout investment’ in Merrill Lynch...This is definitely going to set a precedent, as new capital becomes more expensive and comes with many strings attached.
Worse still, as investment banks look to dump toxic CDOs and avoid mortgage related securities, the slowing MBS market is going to result in the unwillingness of banks to lend to the residential housing market in the US.
If you are looking to buy the US Financials, now that the worst is behind us - caveat emptor."
Add Comment
Be the first to comment on this story and earn 2 points.
Data powered by QuoteMedia.
All Rights Reserved.
Data delayed 15 to 20 minutes unless otherwise indicated.
Terms of Use.
None of the information contained on SocialPicks.com constitutes a recommendation by SocialPicks or its users that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. SocialPicks is not responsible for the posts, discussions, and recommendations of the users on the Site. SocialPicks does not provide investment advice. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the website. SocialPicks' users' past results are not necessarily indicative of future performance. Neither SocialPicks nor any of its users guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the website. You understand and agree that you use the Site and Services at your own discretion and risk and that you will be solely responsible for any damages that arise from such use. Before acting on any information contained on the website, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.