Yesterday’s missive — Rinse. Lather. Repeat — was, apparently, widely circulated. That’s according to a WSJ article Thain’s Housecleaning Spiffs Up Merrill (page C1). (Glad to know that received wider attention).
Here’s the excerpt:
"Rinse, lather and repeat," began an email by Barry Ritholtz, director of equity research at Fusion IQ, that circulated widely Tuesday and summed up the predicament facing Mr. Thain. "Release earnings. Issue guidance. A few weeks later, lower earnings. A few weeks after that, take more write-downs. Raise more capital. Start it all over again next quarter," Mr. Ritholtz wrote.
A separate email, not from Mr. Ritholtz, dredged up nine examples of Mr. Thain suggesting as far back as December he was comfortable with the amount of capital Merrill had amassed. In an interview 47 days into the job, Mr. Thain said that problems in Merrill’s mortgage-related holdings were "for the most part behind us."
Mr. Thain has since acknowledged his disappointment with the continued deterioration of the firm’s mortgage holdings.
The article goes on to make a number of other interesting points — that "Predicting the market’s bottom has flummoxed smart people up and down Wall Street."
Here’s the issue that made me see red on Monday night:
It isn’t clear why Mr. Thain decided it was time to cut Merrill’s losses. Before Monday’s announcement, Merrill had raised more than $15 billion through various common- and preferred-share issues. On July 17, when Merrill posted a $4.65 billon quarterly loss, it announced it was selling assets, including its 20% stake in Bloomberg LP for nearly $4.5 billion.
Investors didn’t know at the time that Merrill was negotiating with Lone Star Funds, the Texas private-equity concern, to sell CDOs with a face value of $30.6 billion, according to a person familiar with the matter.
I find it difficult to reconcile the earnings announcement with the transaction 10 days later . . .
Rinse. Lather. Repeat. (July 2008)
Merrill’s $5.7B Write-Down, $8.5B Share Issuance (July 2008)
Thain’s Housecleaning Spiffs Up Merrill
Shares Increase On Capital Raising, Mortgage-Asset Sale
SUSANNE CRAIG and SERENA NG
WSJ, July 30, 2008; Page C1