Another day, and another financial services firm announces a restructuring, so it seems. But instead of sending the markets down, Merrill Lynch & Co.'s plan to save itself from the toxicity of asset-backed securities sent the bulls stampeding to a 266.48 run up, pushing the Dow to close at 11,397.56. It didn't hurt that coincidentally consumer confidence climbed and crude oil futures dropped to $122.19 a barrel. But is all the giddiness from Tuesday's winnings just a false sense of security?
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Merrill [MER], which closed up $1.92, or 7.89%, to $26.25, said it will sell a big chunk of its asset-backed securities and issue new stock to raise $8.5 billion of fresh capital through an additional 200 million new common shares. Meanwhile, the bank plans to sell more than $31 billion of asset-backed paper at one-fifth of its face value. The moves just come two weeks after Merrill raised $4.5 billion for its sale of its 20% stake in financial media company Bloomberg LP. Merrill's recent moves are a gasp of fresh air for investors of the New York-based investment bank who have been choking from the company's humongous losses over the last couple of quarters.
Meanwhile, Merrill's bullishness caused a collateral uptick for its financial peers as Morgan Stanley [MS], Lehman Brothers Inc. [LEH] and J.P. Morgan Chase & Co. [JPM] all moved forward. Even struggling regional bank Downey Financial Corp. [DSL] was a big winner, riding the coat tails of the financial sector advance. Despite being downgraded by S&P to BB+, Downey jumped 45 cents, or 26.01%, to $2.01.
But it wasn't just financials that rose Tuesday, Deal Stocks in the mining sector saw a jump as Canadian mining company Teck Cominco Ltd. reached an agreement to buy Fording Canadian Coal Trust [FDG] for $14.1 billion in cash and stock. - Gerald Magpily
