NEW YORK (Reuters) - Merrill Lynch & Co Inc MER.Nposted a $2.3 billion loss on Wednesday as it took $7.9 billion in writedowns from leveraged loans from corporate takeovers and bad bets on mortgage securities.
KEN CRAWFORD, WHO HELPS MANAGE MORE THAN $900 MILLION FOR
ARGENT CAPITAL MANAGEMENT, ST. LOUIS:
“To the degree people were talking about $5 to $10 bln in write offs, the silver lining is the final number was smaller.
“One would hope that Merrill has taken their CDO and other exposures and scrubbed as much as can be scrubbed so they don’t have this miss and a further miss.”
“Merrill has already been punished this year -- its shares were at $95 and now its $65. A third of the value has eroded in a market that is up, up even among asset managers, and where it’s not impossible to find a good performing financial stock in 2007.
“I think that people will look at Merrill more skeptically than they would have in the past. I continue to think this was a very difficult operating environment for all the brokerage houses, so Merrill is not the only company affected, though it’s probably the one affected the most. That will attract more scrutiny going forward.”
CAMILLA PETERSEN, ATLANTIC EQUITIES, LONDON:
“Pretty spectacular losses in their fixed income portfolio, obviously most of it coming from CDOs and subprime mortgages. I think it shows two things: sloppy risk management and very aggressive risk taking. They’ve tried to diversify away from their core strengths which are equities, investment banking and wealth management, all of which did very well during the quarter. Merrill has this habit of going into businesses in a big way and then only having to retrench again. It did that with energy, entered the business and exited and now gone back in, in terms of their expansion in Asia, they brought that back.”
“It’s a very disappointing quarter from them. Fine that other businesses are doing OK but you can imagine that morale is pretty low... The write-downs are just unacceptable really. Initially we had expected around 2 to 3 billion and then they announced 5 billion and then yesterday there were rumors circulating that it could easily be 2 billion more. I think once those rumors started, people had their minds open to anything. It’s almost like given everything else that’s happened we can’t be shocked anymore.”
IAN TABBERER, FUND MANAGER AT SCOTTISH WIDOWS INVESTMENT Partnership, EDINBURGH, SCOTLAND:
“I think the results are disappointing. Tied in with the Moody’s downgrade of forward earnings guidance, it shows that the problems in the fixed income market are not as contained as the market may wish to believe.”
GREG KERR, NEW STAR ASSET MANAGEMENT, LONDON:
“I guess it is a bit of a surprise. When they last talked to the market we felt that was their best guess ... The neat thing is that basically they’re taking the bullet. From a Merrill Lynch shareholder point of view it does contain the problem somewhat.”
“I don’t think it’s actually that big a deal for Merrills ... Essentially these are one-off hits rather than ongoing issues. The point is that financial markets anticipate all that and mortgage-backed securities are now are distressed levels. “When investors are looking at Merrill Lynch as a potential investment, they can now assess it (properly).”
THOMAS DI GALOMA, HEAD OF TREASURY TRADING AT JEFFERIES &
CO. IN NEW YORK
“This Merrill news is quite disappointing for the market. They cited monitoring liquidity problems very closely. That is net positive for the bond market when a firm the size of Merrill is having those types of difficulties.”
OWEN FITZPATRICK, HEAD OF U.S. EQUITY GROUP, DEUTSCHE BANK
PRIVATE WEALTH MANAGEMENT, NEW YORK:
“Obviously there’s general concerns about the size of the writedown, and that will continue to be an issue. It seems like they didn’t have the ability to completely price everything two weeks ago. Given the differential between the $5 billion and the $7.9 that does take book value down, but I think you’re still looking at a stock that’s getting to be pretty cheap relative to where it has traded historically, so there’s definitely going to be some valuation support here. I doubt we’ll see it trade off much more.”
“With the other business lines, you’re looking at some good numbers.”
CLEVELAND RUECKERT, MARKET ANALYST, BIRINYI ASSOCIATES INC.
“I don’t think its hugely surprising that (Merrill’s) numbers were so bad. Everybody knew they were going to be bad anyway. The fact that they are bad is not going to make too much of a difference. Is it a positive thing for the market? Obviously not.”
BILL FITZPATRICK, ANALYST, JOHNSONFAMILY FUNDS, RACINE,
“This is a bloodbath for certain. It speaks very poorly to Merrill’s risk management practices. Clearly, heads are going to roll, and I wouldn’t be surprised to see meaningful near-term layoffs. Whoever is running fixed-income or commodities businesses may see their jobs in jeopardy.
“Equity markets, global wealth management and core investment banking operations appear to be performing okay. Merrill has complementary business units, which helps, but the market will focus on the write-downs.
“Merrill has lost credibility in its write-down projections. My gut feeling is that they tried to kitchen-sink the losses in the third quarter, so future write-downs will be smaller.”
LEE NORTON, ANALYST AT JS ASSET MANAGEMENT, WEST
“People were expecting a higher charge than Merrill pre-announced, and they delivered even higher than that.
“These results make me question their management. They’ve eliminated a lot of seasoned veterans in fixed income over the last few years, and brought in some younger people, and they seem to be suffering.”
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