Mea Culpa: I was too bullish on the BofA-Merrill deal
Merrill Lynch is looking like a real dog these days — much more than I realized back in September. They were obviously bankrupt, much as Lehman Brothers was. As bearish/cautious as I have been on the economy and the financial sector, obviously I was not bearish enough. When the Bank of America – Merrill deal got done, I had this to say:
Merrill shrewdly dialed up Bank of America, in fear for their own continued existence. They have been able to strike a deal – and at a decent price. Notch one up for John Thain.
Bank of America made a big mistake in buying Countrywide Financial — one that they will regret for years. Buying Lehman Brothers would have been even more disastrous given their exposure to Commercial Real Estate. But, this deal is good for several reasons. It is better for Merrill than BoA though, as it is a premium to book value and the current stock price.
The Merrill deal is much better than a potential Lehman deal.
Better than Lehman? That’s not saying much. Obviously, I was out to lunch on this one. Lesson learned.
Respect, for admitting a mistake. We all make them. Predictions are hard to make, especially with so much fraud going on. There are so many losses which can not be hidden for much longer. Accounting tricks and SIV's can only grease the economic engine for so long. After that, reality must set in.
Most of the banks need to be shorted into ruin. I'll be happy as I see more of the banking system split up. It's their rightful punishment for their irresponsibility. To the extent that they were just "trying to do what the shareholders demanded", I don't feel bad for those shareholders. I blame my bearish lack of empathy on the idiot bulls of the past 10 years.
Rest assured Ed, it's now come to light that Thain was less than truthful with BoA over the true state of ML. BoA only found out via their trading desk! Given all that's come out about Thain, the guy should be sharing a prison cell with "Bubba the man lova".
Wow! Appreciate the willingness to acknowledge a mistake! Few in the economic/market commentary are so willing (and none of them work for financial companies that routinely evaluate and forecast–e.g.-no apology from GS on its $200/bbl oil price by the end of 2008). Thanks again for the candor.