Merrill Lynch & Co. is known for its logo of the bull. But times have not been so good lately for the investment services firm, and the bull is looking more like a bear. So much so that one has to wonder whether Merrill's recent weakness is an opportunity for players to take a stake in the storied financial services franchise, as in the case of rival Bear Stearns Cos. or commercial bank Countrywide Financial Corp. Merrill is reeling from sobering news that made investors flee the stock Wednesday, where it is currently down in midday trading nearly 6% to $63.45, a new 52-week low.
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Investors are trying to digest:
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A downgrade on Merrill's debt by Standard & Poor's, Fitch Ratings and
Moody's. The downgrade was attributed to the company's $7.9 billion in asset
writedowns from its exposure to subprime debt and collateralized debt
obligations.
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A disastrous third-quarter earnings report attributed again to is exposure
to subprime debt. Merrill registered a loss of $2.24 billion, or $2.85 a
share, from continuing operations from a year-ago profit of $3.05 billion,
or $3.14 a share.
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CEO Stanley O'Neal took responsibility for the loss but also warned that
there might be more trouble ahead. He said the company reduced its exposure
to collateralized debt obligations but "remained subject to market
valuations."
Billionaire Warren Buffett reportedly showed some interest in Bear but later
said his Berkshire Hathaway Inc. "never came close" to buying a stake. So could
the Oracle of Omaha now be looking at Merrill as a possible value play? If
Merrill falls any further, there's no doubt Buffett will be waiting to make a
possible move and take a piece of that wounded bull. — Gerald Magpily
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