Didn’t Merrill just write down over $9 billion?

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 – (read their 10-Q from Q2 2007). 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.

Bloomberg, 28 Jul 2008

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.

  1. M. Klein says

    The shareholders got screwed again. The CEO and other top management walked way with billions as a reward for running the business into the ground. Why is there not a law to stop these executives from getting rewarded for poor management? What happened to the obligation to the stockholders? My husband and I went through something similar to this. The previous CEO at his company walked away with his stock money when he pilfered the company and drove it into the ground. The thing is no one tried to stop him. He got rewarded for stealing and squandering money on cheap women and love shacks, meanwhile the people who built the company got cheated.

  2. Edward Harrison says

    M. Klein,

    In my view, this is a good reason that incumbent management must resign as a pre-condition for receiving considerable government monies. Moreover, it is also one reason that pre-privatization (full government control) or bankruptcy is preferable to the present state of affairs.

    These games will continue until American taxpayers demand such a solution.

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