AP reports that after falling 53% in the last year, Merrill Lynch & Co. (NYSE: MER) shares are falling further in pre-market trading. Maybe the stock is down because Merrill said it would cut 4,000 jobs after $6 billion in subprime-related write-downs pushed it to a loss of $2.14 billion, or $2.19 per share. That $2.19 loss is 20 cents a share worse than the $1.99 per share analysts expected.
But that's not all. Merrill's revenues of $2.93 billion were $770 million short of the $3.7 billion analysts had expected. Merrill posted declining revenue in its fixed-income trading business and a 40% slump in investment banking fees. This caused total revenue to crash 69% from $9.6 billion a year earlier. Merrill has taken write-downs on its bad assets totaling $24 billion. Last quarter it wrote down $1.5 billion worth of asset-backed securities, $3 billion in bond insurance contracts; and $925 million on its leveraged loans. CEO John Thain said that Merrill's $82 billion of "excess liquidity" should protect it.
Merrill's layoffs leave its wealth management arm unscathed. It is taking a $350 million charge for the layoffs, which will reduce its headcount by 10% in areas outside of financial advisers and investment associates. Thain is sending a signal that he is getting back to Merrill's roots as a stock broker and sees less growth in fixed income and investment banking.
Merrill is down 62 cents in early trading. This suggests that investors' expectations were quite low and Merrill's results were just a bit worse than those expectations. More write-downs are ahead since we're in the second inning of the mortgage meltdown. I am not convinced that Merrill's stock brokers will be able to make up for the loss of fixed income and investment banking revenue.
That's why I think it's too early to get into Merrill stock.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Merrill securities.
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Reader Comments (Page 1 of 1)
4-17-2008 @ 11:35AM
Fred Gramcko said...
The person who had 12 K damage to his car from "installation" at Circuit City should have known what I learned about the repair people at Circuit City. I almost had an XM installed by Circuit City in Palm Desert However, after talking to their "mechanic", I could not get my car out of there fast enough.
4-17-2008 @ 5:48PM
lawrencek2002 said...
What's your take now that it went over 2 dollars per share today Peter ?