In addition the sale of new stock, Merrill Lynch announced last night that it was selling CDO assets that had once been on the books at over $30 billion for just $6.7 billion, twenty-two cents on the dollar. What's more, Merrill itself is financing 75% of the purchase. That means that Merrill took in just $1.7 billion in cash for the assets it once said were worth $30 billion.
Perhaps the most troubling aspect of the sale is that just a couple of weeks ago Merrill marked these CDOs at $11 billion. If Merrill's CDOs can lose 40% of their value over a couple of weeks, how confident can anyone be in their other marks or the marks of other investment banks?
Posted by guest , Jul 29, 2008 10:36AM
The Aussie bank booked and cooked the CDO's at 10 cents last week...
MER, if you accept what they got in cash and include their continued exposure, is receiving even less...
Anyone, who is still carrying this junk @ anything more then 10 cents on the dollar should be hammered...
Posted by guest , Jul 29, 2008 10:40AM
07:27 MER Merrill Lynch: Oppenheimer discusses MER's sale of CDOs and raise of equity capital; cuts FY08, FY09 ests (24.33 )
Oppenheimer notes that after the close on Monday, MER announced an $8.5 bln equity raise as well as a "substantial sale of U.S. ABS CDOs" that would reduce its CDOs exposure by $11.1 bln. While MER has significantly diluted existing shareholders, firm applauds this purging of assets as an attempt to cut its losses and focus on stabilizing its platform and righting the franchise towards growth. While MER's stock still sells at a premium to book value and is expensive in our opinion, firm believes the stock is getting closer to fairly valued levels as now the hardest work is behind the co. Firm cuts 2008 EPS est to ($10.50) from ($8.37) vs. consensus of ($6.75). Firm cuts FY09 EPS to $1.27 from $1.75 (consensus $3.66)
Posted by guest , Jul 29, 2008 10:43AM
I managed a valuation review group at one of the IB's, and one of the reason I had to get out of it is what you see here. Management is pulling the "we didn't know we were going to sell them when we issued earnings" bullshit. They absolutely had an idea what the price talk was on this when they issued. If you think valuation control at any of the other IB's are any better (in terms of overriding senior managements earnings management bias) you are fooling yourself.
And the auditors just go along with it...
Posted by guest , Jul 29, 2008 10:46AM
I love how the stock is down 4% and its puts are down 20%...
Nothing stinks around here...
Posted by lemmerdeur , Jul 29, 2008 11:08AM
Shops like Cheyne cracked the mark-to-market dam on these things. I don't think anybody has a choice but to follow suit and sell them at 10-20 or so.
Expect a flood of these CDOs to be marked down to pennies by other shops soon.
How many more equity sales can ML squeeze out before they run out of marks who are willing to buy?
Posted by guest , Jul 29, 2008 11:35AM
actually, if they keep financing the deals, they can sell them all back to themself in a never-ending escher accounting set.
carney, this is right in your wheelhouse, please provide a 10,000 word treatise.
thanks.
-retail