Merrill Lynch Misses The Mark
Thursday, April 17, 2008PAUL KANGAS: While Google hit, Merrill Lynch missed. The investment bank posted its third straight quarterly loss on $6 billion in new loan write- downs. Merrill lost almost $2 billion in the quarter, or $2.20 a share. And that was far more than the $1.99 per share loss Wall Street expected. And, as Erika Miller reports, Merrill's CEO sees more challenges ahead.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Merrill Lynch's first quarter was more horrendous than Wall Street expected, but even worse, Merrill says the pain isn't over yet. In a Web conference call this morning, Merrill Lynch CEO John Thain warned investors of the tough environment.
JOHN THAIN, CEO, MERRILL LYNCH: We are planning for a slower and more difficult next couple of months and probably next couple of quarters. But we are also optimistic for our results for full-year 2008.
MILLER: The company's $2 billion loss was almost entirely due to $6 billion in new write-downs. Standard & Poor's credit analyst Scott Sprinzen believes Merrill will continue to have difficulty valuing many securities on its books.
SCOTT SPRINZEN, CREDIT ANALYST, STANDARD & POOR'S: The biggest challenge, we believe, is just the marketplace, the fact that there's such volatility that a good of the credit market is still seized up without much activity happening and a lot of people stuck with illiquid positions.
MILLER: Merrill also said it will cut about 4,000 jobs, roughly 10 percent of its workforce, to help reduce costs. Still, Morningstar analyst Ryan Lentell says there is one encouraging sign.
RYAN LENTELL, BROKERAGE ANALYST, MORNINGSTAR: I think investors are probably breathing a little bit of a sigh of relief today that the losses didn't force another capital raise, which was the scare that everybody had in the last week and week-and-a-half or so.
MILLER: He says that's a big reason Merrill shares rose sharply today, although the stock is still down 13 percent this year. The question is whether now is a good time to buy.
LENTELL: There's reason to buy it if you're a long-term investor. I think it is undervalued today, but it comes with significant risk and you have to be mindful of that risk. The next three to six months to a year are probably going to continue to be choppy. But if you look out over a longer time horizon, I think Merrill is a pretty good franchise with a strong wealth management business, and it should get through this.
MILLER: He's not the only one worried about trouble, Moody's Investors Service warned today that it might cut Merrill's long-term debt rating. Merrill Lynch's results are a stark reminder that the credit crisis is not over yet. Investors are also bracing for weak results from Citigroup (C) tomorrow, and Bank of America (BAC) on Monday. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
