Did you hear? $12bn?
The rumour flew round the London market on Tuesday morning that Merrill, poised to reveal its third quarter numbers in full, was going to have a larger-than-flagged charge on troubled investments.
The nasty figure in question was $12bn - significantly higher than the $5bn write-down the Wall Street bank warned it was facing earlier this month, a hit that meant it would post a loss for the quarter. That charge was the result of the reduced value of CDOs, subprime mortgages and leveraged finance commitments held on its balance sheet.
The New York Post reports that the whispers started in the US on Friday, among CDO traders and portfolio managers - but does not name a figure being bandied around. Part of the fuel for this fire was the notion that a special board meeting had been called to discuss the matter.
But adds the Post:
In reality, the board’s get-together was a regularly scheduled meeting. But the losses - at least into the first three weeks of the quarter - appear to be real enough.
The bulk, $4.5bn, of the announced losses were in subprime mortgage and CDO securities. The continued deterioration in that market over the past few weeks has, in the words of a Merrill executive, “kept the blood on the page,” says the Post story.
It would be quite some case of haemophilia to have kept Merrill bleeding to the extent that the London rumour mill would have you believe.
With its September Q3 end, Merrill does have a full month more credit crunch in its numbers than some peers, namely Goldman, Lehman, Bear and Morgan Stanley. The banks’, including Merrill benefited from a relief rally earlier in the month when their losses on subprime-related securities and leverage loans weren’t as bad as investors feared. Will the not-so-bad news turn out to be merely one step on the way to the worst news?
