Early this month, it looked like we were getting into another media driven financial panic. The chiefs of banks and brokerages had been toppled. The front page of the Journal reported that Jimmy Cayne likes golf, cards and maybe even a little pot now and then. And, on November 2nd, the Journal reported that the bank had "engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses." And just in case that was too subtle, the article drew a connection to Enron and Japanese accounting scandals.
Merrill's stock dropped after the story and the brokerage fought back. It pointed out that the story seemed to be riddled with holes, with anonymous sources making vague allegations. And now it looks like Merrill has won. The Journal has printed a correction.
This article was based on incorrect information that the Merrill Lynch & Co. had engaged in off-balance-sheet deals with hedge funds in a possible bid to delay the recognition of losses connected to the firm's mortgage-securities exposure. In fact, Merrill proposed a deal with a hedge fund involving $1 billion in commercial paper issued by a Merrill-related entity containing mortgage securities. In exchange, the hedge fund would have had the right to sell the mortgage securities back to Merrill after one year for a guaranteed minimum return. However, Merrill didn't complete the deal after the firm's finance department determined it didn't meet proper accounting criteria. In addition, Merrill says it has accounted properly for all its transactions with hedge funds.
We didn't exactly tell you so, but our Opening Bell sounded a skeptical note when the article was printed, as did Felix Salmon.
Corrections & Amplifications [Wall Street Journal]
WSJ Admits its Merrill Story was False [Portfolio]