Jul 30, 2008
Merrill Lynch and unfulfilled promises
John Thain was forced to revert to its commitments. For months, the boss of Merrill Lynch has claimed that the brokerage had sufficient capital to cover future problems with his considerable stock of mortgages at risk and bonds secured on its loans (CDOs) and would not need sell assets or issue new shares. Now, within a few weeks, he will do both.
Keep this article in your binder.
Subscribe to Monde.fr: € 6 per month + 30 days available
ON THE SAME TOPIC
The sale by Merrill Lynch for the bulk of its CDOs at Lone Star should withdraw considerable weight on the action of the group.
Chronicle breakingviews Merrill Lynch and unfulfilled promises
Chronicle breakingviews Lehman Brothers needs a shock treatment
The facts Merrill Lynch again forced to recapitalize
Chronicle breakingviews Towards the end of Swiss banking model
Computer Financial institutions pay conséquenses of the crisis subprimes
Portfolio Concern about the fate of American banks
Edition subscribers Archive: The leaders of Natixis refine a plan for refocusing the bank on looms less risky
Of course, the huge fiasco of Merrill Lynch in subprimes is not the fault of Mr. Thain - it was very difficult to explain by presenting the results of the second quarter and correcting an air irritated analyst who was referring to the CDOs that "(them), guys" had created. Mr. Thain, of course, took the helm after the crisis began. And perhaps that the measures announced in recent days will bring the vessel upright.
The sale by Merrill Lynch for the bulk of its CDOs at Lone Star should withdraw considerable weight on the action of the group. He will almost 9 billion dollars (5.8 billion euros) of exposure, but it's all old CDOs before 2005 that still offer performance correct and are widely covered. This has paid dearly to get rid of the rest. Merrill provides a loss of $ 5.7 billion this quarter as a result of the depreciation of assets.
Again, this is not the fault of Mr. Thain. But his ads early on the strong position in terms of capital Merrill makes a case study on the dangers of putting itself in an untenable position. Two weeks ago, he had to throw in the towel and begin to sell assets, namely its 20% in the group Bloomberg LP for $ 4.4 billion.
Now, we must rebalance the balance of the facility with 8.5 billion dollars of additional capital, with almost one third Temasek used to repay (the fund sovereign Singapore), according to an agreement with the shareholder who has endorsed a previous capital increase.
It may, of course, be an advantage to be the first to get rid of a body as important asset compromise. But there is a more immediate lesson to be learned for the leaders of financial groups: Do not make promises you can not keep.
by erectusplus at 8:54 AM |
0 Comments:
Post a Comment
<< Home