Investors suing Bank of America won class-action status for their lawsuit accusing the bank of fraudulently misleading them about the 2008 takeover of Merrill Lynch, reports Reuters. US District Judge P. Kevin Castel in Manhattan on Monday rejected the bank’s argument that the investors could not prove they suffered losses by relying on materially misleading statements or omissions. Among the other defendants who were also sued and opposed class certification were former Bank of America Chief Executive Kenneth Lewis, former Merrill Chief Executive John Thain, former BofA chief financial officer Joe Price, and Bank of America’s board of directors. The lawsuit consolidated litigation that had been brought nationwide, and names pension funds in Ohio, Texas, the Netherlands and Sweden as lead plaintiffs.
One cannot fault the Chinese walls at Merrill Lynch, joint corporate broker to Invensys.
We have upgraded Invensys to a Buy, with a price target of 285p. While pressure on Controls will potentially continue in the short term and H2 Rail margins could be at risk, we think the valuation is now more than discounting the earnings risk.
Alternative title: The bull that got away.
Everyone else has got it in the neck for the failure of RBS, so it’s only right that we remember those who masterminded the disastrous acquisition of ABN Amro. Read more
From stress test to recession.
Merrill Lynch has on Tuesday made some savage revisions to its forecasts for UK banks to reflect a more bearish economic outlook. Read more
Barely six weeks after chief executive Jim French confirmed guidance and described forward tickets sales as encouraging, Flybe, the regional UK airline, has issued another profits warning.
Flybe’s press release: Read more
Interesting chart from Ruslan Bikbov at BofA Merrill Lynch.
Three years after Lehman Brothers declared the biggest corporate bankruptcy in history, the defunct bank is approaching the end of the process as additional creditors voice their support for a final pay-out plan, reports the FT. The Lehman estate said on Thursday that Bank of America and Merrill Lynch had agreed to support a compromise proposal to settle how Lehman would repay its derivatives counterparties for positions that were cancelled during its failure in September 2008. As part of the agreement, BofA, which acquired Merrill in 2008, will drop its appeal of an earlier court decision forcing it to pay $500m to Lehman, related to bank accounts seized just before Lehman’s bankruptcy. BofA also would reduce its derivatives claims by $4bn.
Bank of America said it would cut 30,000 jobs, or about 10.5 per cent of the group’s workforce, and save $5bn a year in costs from the first phase of a restructuring plan, the FT reports. Brian Moynihan said there would be several billion dollars more worth of cuts to to come. He seemed to rule out some of the drastic moves that have been suggested to staunch the bleeding at BofA, such as a sale or spin-off of Merrill Lynch, the investment bank acquired during the crisis. However, he was less clear on the future of Countrywide, the other big acquisition made under his predecessor Ken Lewis, which is the source of much of the group’s mortgage woes. Investors were unimpressed with the plan and the lack of details on how it will be accomplished, says Reuters.
Well, this is one way of trying to show that you’re in control and that Merrill Lynch is absolutely, totally, honestly, really, not going anywhere.
Here’s the top of the statement released by BofA on Tuesday evening: Read more
— By John McDermott and Cardiff Garcia
The details of the US government’s attempted bank raid are coming in on Friday afternoon. Read more
US regulators have pushed Bank of America to show what measures it could take if conditions worsen for the lender, the Wall Street Journal reports, citing people familiar with the situation. Executives of the bank reportedly responded to the unusual request from the Federal Reserve with a list of options that includes the issuance of a separate class of shares tied to the performance of its Merrill Lynch securities unit. But CEO Brian Moynihan isn’t expected to pull the trigger soon, if ever, on the creation of a so-called Merrill Lynch tracking stock.
Blackstone is in exclusive talks to buy $1bn of Merrill Lynch’s real estate investments from Bank of America, the FT reports. The sale, which according to people familiar with the matter is still weeks away, would comprise unwanted property investments in Europe, the US and South America, including logistics properties in central Europe, shopping centres in Germany and a Brazilian housing developer. Merrill invested in the assets, often alongside third parties, before the 2008 bust. The sale is part of the bank’s wider efforts to dispose of non-core assets and would effectively conclude the real estate portion of its winding down of assets in its principal investments unit, backed by BofA’s own capital.
The SEC is probing Merrill Lynch’s sale of a $1.5bn CDO it created for Magnetar, the hedge fund, as well as investigating the Merrill-tied collateral manager involved in the deal, the FT reports. NIR Capital Management served as manager for the CDO, called Norma. The probe is unusual in targeting collateral managers, who select the assets for inclusion into CDOs. Regulators are investigating whether Merrill told buyers that Magnetar helped select the assets included in the Norma CDO and bet against those same assets, sources said. Yves Smith at Naked Capitalism recounts the exotic nature of Magnetar’s Norma trade and the involvement of Merrill’s CDO business.
The Securities and Exchange Commission is investigating Merrill Lynch’s sale of a CDO it created for Magnetar, an Illinois hedge fund, and the collateral manager involved in the deal, the FT says. The investigation marks a broadening of several CDO probes under way at the SEC into the role of collateral managers, institutions that help select the assets included in the securities. NIR Capital Management, a Roslyn, New York firm run by Corey Ribotsky, served as manager for the security under scrutiny, a $1.5bn CDO known as Norma. Neither Mr Ribotsky nor his attorney returned calls seeking comment. The SEC is also looking at whether Merrill mispriced assets in the CDO, according to people familiar with the matter. Bank of America, which acquired Merrill Lynch, declined to comment. The bank previously said it lost $900m on the Norma CDO.
And so… the rotation out of EM equities into DM equities goes on.
Data from Citigroup: Read more
And the overwhelming theme of the latest BofA Merrill Lynch fund managers survey is…
Complacency. Read more
Last week, Michael Lewis brought you his take on Ireland, a Vanity Fair epic on the nation’s real estate and banking bust. He also brought us the story of Philip Ingram, a zoology student and former Merrill Lynch banking analyst.
Ingram, Lewis says, was one of the few analysts to really ‘get’ the looming financial crisis in Ireland. In early 2008 he conducted a survey of commercial property players, with the results published in a March 2008 note. According to Lewis, Merrill ended up retracting the report, allegedly at the behest of its Irish bank clients. A “toned down” version, one that was “purged” of insider quotes, was eventually published instead. Read more
It was here. But Merrill wanted it taken down. Bye By, Philip Ingram’s research.
One of the most damning bits of Michael Lewis’ “When Irish eyes are crying” article concerns a zoology student, ‘business relationships’ and a missing Merrill Lynch note.
Here’s the extract via Barry Ritholtz over at Big Picture: Read more
Merrill Lynch has agreed to pay $10m to settle SEC allegations that its proprietary traders misused client information for their own strategies, reports the FT. The SEC had alleged that proprietary traders on Merrill’s Equity Strategy Desk, which managed $1bn for the company’s own account, sat on the same floor as, and shared information with, market makers from 2002 to 2007. Bank of America, which now owns Merrill, said it has taken action to separate trading desks physically. Enforcement cases over prop trading have so far been rare, the WSJ says, adding that the settlement is likely to increase suspicions among investors that banks use their constant flow of client orders for their own benefit.
Merrill Lynch has agreed to pay $10m to settle allegations that its proprietary traders misused client information for their own strategies. reports the FT. The settlement with the SEC comes as US regulators move to limit financial institutions from investing on their own account. Several financial groups have begun spinning off their “prop” desks in anticipation of the new rules. The Financial Stability Oversight Council of regulators issued a study earlier this month acknowledging concerns that banks could disguise prop trading through market making activities for clients. Merrill, which was acquired by Bank of America in 2009, agreed to settle, without admitting or denying wrongdoing. DealJournal meanwhile examines some of the trades that landed Merrill in hot water.
More on those Smith & Nephew bid rumours, this time from Merrill Lynch, whose investment bankers have reportedly been trying to put the medical devices group together with a heavily indebted US rival.
Analyst Ed Ridley-Day has told clients on Wednesday morning that he is moving to a “No Rating” on S&N because of all this takeover speculation. Read more
HCA, the US hospital chain owned by buyout groups KKR and Bain Capital, on Wednesday refiled plans for an initial public offering after completing a corporate reorganisation, reports Bloomberg. After withdrawing its May regulatory filing, HCA said in its new filing that it still plans to sell as much as $4.6bn of shares. The registration reiterates that the private-equity owners, who paid themselves a $2bn dividend in November, are contemplating a public share sale. KKR and Bain, along with Merrill Lynch, bought HCA in 2006 for $33bn, in what was then the largest leverage buyout on record.
Foreign banks were among the biggest users of the US Federal Reserve’s $3,300bn emergency credit programmes in the financial crisis, according to Fed disclosures on Wednesday, the FT reports. News of the Fed’s lending to foreign banks may fuel public anger over the US government’s bail-out of Wall Street. Among more than 21,000 transactions of the Fed’s Term Auction Facility alone from 2007 to 2010, the biggest cumulative borrower was UK bank Barclays, which bought the US unit of Lehman Brothers in late 2008. Foreign banks RBS, Bank of Scotland, Société Générale, Dresdner, Bayerische Landesbank and Dexia were among the top 10 users of TAF. The No 2 user was Bank of America, which bought Merrill Lynch and borrowed a cumulative $212bn. The WSJ adds that the Fed data could influence official deliberations on raising scrutiny of US firms. FT Alphaville has more details and analysis.
The Federal Reserve has just released details of its Primary Dealer Credit Facility — the programme that allowed the Fed’s official ‘trading partners’ to borrow from the central bank in return for posting collateral. It was created in March 2008 to help ease liquidity after the credit crunch and the collapse of Bear Stearns. Read more
Yell has a new chief executive. His name is Michael Pocock and in a previous life he was the boss of Polaroid* which he managed to nurse back to profitability and eventually sell.
Presumably he will be hoping to repeat the trick at the debt laden directories business (although we can’t think who would want to buy it) because the odds of the company trading its way back to financial health look very slim. Read more
The latest corporation looking to take advantage of the yawning gap between earnings yields and (after tax) debt yields is IBM.
Via Reuters: Read more
From the FT, January 2010.
Ask shareholders which rights they treasure most highly and many say it is their right to pre-emption, which protects their holdings from being diluted by new share issues.
Bank of America will cut several hundred jobs in its investment banking division, bringing home the effects of the slowdown in bond and equities trading in 2010’s second half, the NYT reports. Bank of America hired over a thousand employees in the first half as it built on its crisis-era acquisition of Merrill Lynch — but the job cuts will slash through equities and fixed income desks alike as the economic recovery fades. Meanwhile, Bloomberg reports that Goldman Sachs has offered one of the best-performing financial stocks in the past decade. Returns on its stock beat the S&P 500 — but generally stand out as the best of a poor bunch of bank stocks.