Saturday, January 12, 2008
Merrill Lynch 4th Quarter write down hits 15$ billion:Abandon Ship
As you will see from Bloomberg,Marketwatch,and the International Herald Tribune,Merrill is now expected to report a 4th quarter write down of 15$ billion.Apparently far in excess of analysts expectations.Where these analysts get their numbers from l have no idea.None of them seem to be able to build accurate valuation models for Merrill.The problem is many of them are innumerate snake oil salesman,unable to count nothing more than the loose change in their own pockets.I said last year in a previous blog (see below 30 Dec 2007) I expected a 4th quarter write down of 15$ billion.So it is.
After the news was announced,the shares went up to around 54$.This is called a suckers rally.My own valuation model estimates of Q1 & Q2 2008 losses for ML show that there is at least another 9$ billion which will be written off by mid year on top of the 23$ billion to date.My valuation model is extremely robust since and has been coded by of the finest brain in the city,me.It's been bang on to date.
Although Mr Thain is hiring all his ex-Goldman buddies to strengthen senior management,no matter how great the management is,at the current rate of write downs,the company will simply run out of capital.My current calculations suggest it's only the cash from Sovereign Investment Funds et al that is allowing Merrill to meet it's current wage bills.Some of the SIFs will undoubtedly make money out of their positions in US investment banks and brokerages.Increasingly this looks unlikely at Merrill.Temasek would do well to dump it's stake while it's up.
The bonuses were announced last Thursday,if you're a smart employee you could do worse than to abandon ship once it's been paid into bank account.No one would blame you.It's called survival.
RB
After the news was announced,the shares went up to around 54$.This is called a suckers rally.My own valuation model estimates of Q1 & Q2 2008 losses for ML show that there is at least another 9$ billion which will be written off by mid year on top of the 23$ billion to date.My valuation model is extremely robust since and has been coded by of the finest brain in the city,me.It's been bang on to date.
Although Mr Thain is hiring all his ex-Goldman buddies to strengthen senior management,no matter how great the management is,at the current rate of write downs,the company will simply run out of capital.My current calculations suggest it's only the cash from Sovereign Investment Funds et al that is allowing Merrill to meet it's current wage bills.Some of the SIFs will undoubtedly make money out of their positions in US investment banks and brokerages.Increasingly this looks unlikely at Merrill.Temasek would do well to dump it's stake while it's up.
The bonuses were announced last Thursday,if you're a smart employee you could do worse than to abandon ship once it's been paid into bank account.No one would blame you.It's called survival.
RB
