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The argument made Tuesday is that Merrill is finally clearing the decks, taking the big loss it should have shouldered many months ago. Maybe. Timing is always the tough part. It is a bold move, however, given the sheer number of write-downs it has absorbed and the mountain of capital it has raised, and clearly a bet that a non-CDO future is better than a CDO-heavy past. And indeed, that magic word, capitulation, has been uttered about Merrill's move like a chant. Although a number of banks have sold off blocks of bad mortgages -- Citigroup Inc. in particular -- the sense is that Merrilll is making the dramatic move to get itself approximately healthy. In other words, capitulation. In other words -- hope springs eternal -- the dawn is upon us. Maybe it's the best move, or maybe Thain will look back and wish he had held on a little longer. But we'll never really know because Thain's moves change the game for everyone. Meanwhile, consider a larger issue: If this does really represent capitulation, and thus some sort of darkest-night bottom, why is it that Merrill is so often the one to do it? This is not a criticism, but an observation of a phenomenon that is larger than a simple write-down, no matter how big. Merrill's agreement to settle with Eliot Spitzer in the analyst scandals effectively marked Wall Street's capitulation to the AG; talks with other firms dragged on, but everyone knew they would settle. And previous to that Merrill had already developed a reputation on Wall Street for reacting fastest to public controversy; this often meant Merrill got an unusual amount of attention from legal and regulatory types. Why? Historically, Merrill's giant brokerage business and its broadly based shareownership made it the most "public" or "retail" of the big Wall Street firms. That sensitivity to public opinion -- never so apparent as in analystgate -- meant that it moved to offload its problems much faster than, say, a Bear Stearns Cos., Morgan Stanley or even Goldman, Sachs & Co. In this regard, Merrill, among the big firms, resembled a commercial bank. Again, this is not a criticism. The similarities only arise because Merrill, like the big banks, tends to tack closer to prevailing winds than its brethren (the banks have traditionally had not only stockholders to deal with, but layers of jumpy regulators). The phenomenon in banking has been repeated so many times that it's a stereotype: The big banks are the last in on a big moneymaking trend and the first out (obviously better to be early in, early out). Consider how late the big banks -- Bank of America Corp., the old Fleet Boston -- got into, then out of, tech banking; consider how long it took for Merrill to plunge into mortgages under Stan O'Neal. Merill's overseas adventures resemble that of a number of big banks: in, out, buy, sell. The cliché is that big bank moves tend to mark the top of a cycle, or the bottom. This is not a universal truth, just a tendency: Look at Citi, which was early, late and everywhere in-between on mortgages, and now has trouble getting out of its own way. Does this suggest that banks, or retail-sensitive firms like Merrill, are any less savvy than others? That's what is often said -- often by firms that today are either vaporized or seriously listing -- but it's a very debatable statement. Likelier is that the tendency to plunge, then capitulate, speaks to the subtly different context in which they operate, and one, given current trends, that may be more widespread in the future than in the past. It doesn't matter that Thain was a Goldmanite. For all O'Neal's famous envy of Goldman's ways, Merrill is simply a different kind of firm, with a different history and different economics than Goldman. The odd thing is you get a sense that perhaps Thain understands that better than O'Neal did. - Robert Teitelman CategoriesComments
From: RCC,
ML needs to stick with what it knows. Big mistakes are a habit... $5.3 billion purchase of Mercury Asset Managment. $1 billion purchase of Herzog. $1.3 billion purchase of First Franklin. I'm sure I missed one...
Posted on:
July 29, 2008 4:42 PM
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You've got to believe that when John Thain started putting together his most recent attempt to clear the decks at Merrill Lynch & Co., he wasn't thinking that he'd have to announce it right after the Dow thudded 200 points. But that's what happened, which tells you a couple of things: You can't time these deals, and Thain's luck has been generally lousy. That said, another big write-down, the sale of $30 billion in CDOs to Lone Star Funds and a public offering may be what the doctor finally ordered for Merrill. Or not. We'll see. 
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Is axa in trouble. I'm getting mixed signals.what about Citizens?
dcm