Analysts expected Merrill Lynch (NYSE: MER) to write down about $12 billion more in losses from its mortgage investments, but The New York Times reports this morning that it will actually write down $15 billion, or $3 billion more than anticipated when it reports earnings next week. That's in addition to the $8.4 billion write down in the third quarter for a total of $23.4 billion in losses from its mortgage fiasco.
The Times reports new Chairman and CEO John Thain is looking for investors who can help Merrill out of its mess with a $4 billion cash infusion. According to the Times, Merrill is in talks with investors in the U.S., Asia and the Middle East. Thain also is looking to sell off some assets to raise cash, such as Merrill's $4 billion stake in Bloomberg. Assets already sold to raise cash include a $1.3 billion sale of Merrill Lynch Capital to General Electric.
In another key move to fix what's broken at Merrill, Thain is planning major changes in how employees get paid. He plans to change the bonus structure so that employees will be rewarded primarily for team performance rather than for individual performance, according to the Times. Thain wants to use some of the management style he thinks worked so well when he was co-president at Goldman Sachs (NYSE: GS).
Thain recently indicated in a London meeting that Merrill needs to build its presence in China and expand its principal investing businesses, including private equity, commercial real estate and infrastructure. Sounds a lot like going back to the basics, in which Merrill Lynch has a long track record of success. Also sounds a lot like Thain's planning to move Merrill's management style a lot closer to the style at Goldman Sachs, which may help to right what otherwise may be a sinking ship.
Lita Epstein has written 20 books including "Trading for Dummies" and "Reading Financial Reports for Dummies."
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