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Merrill Lynch Reports Loss on $8.4 Billion Writedown (Update6)
By Bradley Keoun
Oct. 24 (Bloomberg) -- Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history after taking $8.4 billion of writedowns, almost double the firm's forecast three weeks ago.
The third-quarter loss of $2.24 billion, or $2.82 a share, was about six times deeper than the New York-based company estimated on Oct. 5. Merrill wrote down the value of subprime mortgages, asset-backed bonds and loans to finance leveraged buyouts, and Chief Executive Officer Stanley O'Neal said in a statement today that he is ``working to resolve the remaining impact from our positions.''
Results :
Merrill's stock fell the most in five years,
its credit rating was cut
the risk of owning its bonds rose after O'Neal said the firm misjudged the severity of the decline in debt markets since July. Investors who lauded the 56-year-old CEO for chasing higher returns as the biggest underwriter of securities backed by subprime loans now question his management. O'Neal said the firm increased the writedown after conducting a more ``conservative'' analysis of its holdings.
`Startling'
Standard & Poor's, Fitch Ratings and Moody's Investors Service lowered their assessments of Merrill's credit. S&P cut its rating on Merrill's senior unsecured debt to A+ from AA-, describing the quarter's loss as ``startling'' and citing ``management's miscues'' that raised concern about the firm's risk controls and business strategy.
DOWN DOWN DOWN
Financial stocks sank, led by Merrill, which was down 6 percent to $63.01 at 3 p.m. in New York Stock Exchange trading.
Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage bonds, declined 1.5 percent to $55.88.
Bear Stearns Cos., the second-biggest, fell 2.7 percent to $113.04.
`Additional Analysis'
NO BONUSES GUYS !!!!
Merrill's compensation costs fell by 49 percent from a year earlier to $1.99 billion, indicating that the quarter's losses may reduce year-end bonuses for some of Merrill's 64,200 employees. The firm said today that it ``remains focused on paying its best performing employees competitively.''
Merrill said its holdings of so-called collateralized debt obligations, or CDOs, along with other securities and loans linked to subprime mortgages, lost $7.9 billion of their value in the quarter. CDOs are bonds created from pools of debt securities and loans.
Merrill also wrote down the value of leveraged buyout loans the firm couldn't sell to investors by $463 million, after underwriting fees.
Executive Ousters
Merrill's writedown exceeded Citigroup Inc.'s $6.5 billion and increased to more than $30 billion the total third-quarter cost for bad loans and trading losses reported by the world's biggest securities firms and banks.
Worst Performer
Merrill said it reduced its inventory of CDOs comprised of asset-backed securities by 53 percent during the quarter to $15.2 billion. The firm also whittled down the size of its LBO loan commitments to $31 billion, 42 percent less than at the end of the second quarter. Short-term borrowings climbed 80 percent from the second quarter and shareholders' equity declined 9.6 percent.
THE ONLY GUYS WHO SURVIVED THE HOLOCAST BETTER
HATS OFF TO THESE GUYS
Goldman Sachs Group Inc., the biggest securities firm by market value, has gained almost 12 percent.
Goldman reported a 79 percent increase in profit for the three months ended Aug. 31 after betting on a drop in prices of securities tied to home loans.
Investors Flee ( they are surely "lynched" from their wealth .. No safe heavens .. )
Credit-default swaps tied to Merrill Lynch bonds rose 5 basis points to 95 basis points, according to Phoenix Partners Group in New York. That's more than double where they were two weeks ago and almost six times the spread at the beginning of the year. The cost of the swaps, which are contracts protecting payments on bonds, rises as the perception of credit quality worsens.
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Well jokes apart this is a serious issue. Specialist firms like Merryl are hurt deep. I wonder how many more "money management" firms will have a courage to come out with their losses. If they do then we can see further rate cuts. If that happen than the mortgages will be refinanced. Who will pay for the difference? that is a bigger question. THE ECONOMY. This is a nasty loop in which economy have landed this time and it will be interesting to see how the crisis will be managed both at the national level and by firms.
------------------------------------------------------------------------------------
This article is taken from Bloomberg and edited by me.
"Dont shoot the messenger"
By Bradley Keoun
Oct. 24 (Bloomberg) -- Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history after taking $8.4 billion of writedowns, almost double the firm's forecast three weeks ago.
The third-quarter loss of $2.24 billion, or $2.82 a share, was about six times deeper than the New York-based company estimated on Oct. 5. Merrill wrote down the value of subprime mortgages, asset-backed bonds and loans to finance leveraged buyouts, and Chief Executive Officer Stanley O'Neal said in a statement today that he is ``working to resolve the remaining impact from our positions.''
Results :
Merrill's stock fell the most in five years,
its credit rating was cut
the risk of owning its bonds rose after O'Neal said the firm misjudged the severity of the decline in debt markets since July. Investors who lauded the 56-year-old CEO for chasing higher returns as the biggest underwriter of securities backed by subprime loans now question his management. O'Neal said the firm increased the writedown after conducting a more ``conservative'' analysis of its holdings.
`Startling'
Standard & Poor's, Fitch Ratings and Moody's Investors Service lowered their assessments of Merrill's credit. S&P cut its rating on Merrill's senior unsecured debt to A+ from AA-, describing the quarter's loss as ``startling'' and citing ``management's miscues'' that raised concern about the firm's risk controls and business strategy.
DOWN DOWN DOWN
Financial stocks sank, led by Merrill, which was down 6 percent to $63.01 at 3 p.m. in New York Stock Exchange trading.
Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage bonds, declined 1.5 percent to $55.88.
Bear Stearns Cos., the second-biggest, fell 2.7 percent to $113.04.
`Additional Analysis'
NO BONUSES GUYS !!!!
Merrill's compensation costs fell by 49 percent from a year earlier to $1.99 billion, indicating that the quarter's losses may reduce year-end bonuses for some of Merrill's 64,200 employees. The firm said today that it ``remains focused on paying its best performing employees competitively.''
Merrill said its holdings of so-called collateralized debt obligations, or CDOs, along with other securities and loans linked to subprime mortgages, lost $7.9 billion of their value in the quarter. CDOs are bonds created from pools of debt securities and loans.
Merrill also wrote down the value of leveraged buyout loans the firm couldn't sell to investors by $463 million, after underwriting fees.
Executive Ousters
Merrill's writedown exceeded Citigroup Inc.'s $6.5 billion and increased to more than $30 billion the total third-quarter cost for bad loans and trading losses reported by the world's biggest securities firms and banks.
Worst Performer
Merrill said it reduced its inventory of CDOs comprised of asset-backed securities by 53 percent during the quarter to $15.2 billion. The firm also whittled down the size of its LBO loan commitments to $31 billion, 42 percent less than at the end of the second quarter. Short-term borrowings climbed 80 percent from the second quarter and shareholders' equity declined 9.6 percent.
THE ONLY GUYS WHO SURVIVED THE HOLOCAST BETTER
HATS OFF TO THESE GUYS
Goldman Sachs Group Inc., the biggest securities firm by market value, has gained almost 12 percent.
Goldman reported a 79 percent increase in profit for the three months ended Aug. 31 after betting on a drop in prices of securities tied to home loans.
Investors Flee ( they are surely "lynched" from their wealth .. No safe heavens .. )
Credit-default swaps tied to Merrill Lynch bonds rose 5 basis points to 95 basis points, according to Phoenix Partners Group in New York. That's more than double where they were two weeks ago and almost six times the spread at the beginning of the year. The cost of the swaps, which are contracts protecting payments on bonds, rises as the perception of credit quality worsens.
------------------------------------------------------------------------------------
Well jokes apart this is a serious issue. Specialist firms like Merryl are hurt deep. I wonder how many more "money management" firms will have a courage to come out with their losses. If they do then we can see further rate cuts. If that happen than the mortgages will be refinanced. Who will pay for the difference? that is a bigger question. THE ECONOMY. This is a nasty loop in which economy have landed this time and it will be interesting to see how the crisis will be managed both at the national level and by firms.
------------------------------------------------------------------------------------
This article is taken from Bloomberg and edited by me.
"Dont shoot the messenger"
