Merrill Lynch (MER) bulls led the pack in the wrong direction
Posted by: in Stocks Money NewsFiled under: Earnings reports, Bad news, Market matters, Citigroup Inc. (C), Merrill Lynch (MER), Housing
Merrill Lynch (NYSE: MER) took the record on Friday when it announced that it would take a $5 billion hit to third-quarter earnings because of losses in its mortgage-securities business. Today, JP Morgan Chase & Co. (NYSE: JPM) and Credit Suisse Group (NYSE: CS) cut their ratings of MER. The next three hardest hit by the subprime mortgage mess are UBS (NYSE: UBS) ($3.4 billion), Citigroup (NYSE: C) ($3.3 billion) and Deutsche Bank (NYSE: DB) ($3.1 billion).
This is certainly a race Merrill Lynch did not want to win and it’s been hit hard. MER is dropping fast and is now down $18.21, 19.6% from its high of $92.86 on May 29. At 11:30, MER was selling at $74.65. Why is MER being hit so hard? Well it told investors just three months ago that its “exposure was ‘limited’ and ‘contained,’” according to a report in the Wall Street Journal.
Heads did roll on this miscalculation. Merrill Lynch fired its top credit-market executives, Osman Semerci and Dale Lattanzio on Friday, the Journal reported. The Journal says CEO E. Stanley O’Neal told employees he shared the blame for Merrill’s problems and said, “While market conditions were extremely difficult and the degree of sustained dislocation unprecedented, we are disappointed in our performance in structured finance and mortgages.” And he added, “I missed it.”
Boy did he miss it, as did many others in the financial world. The big question yet to be answered is what will happen to the investors who hold mutual funds or money market funds whose assets include these mortgage securities. I haven’t seen any analysis discussing the impact on investors’ holdings, but I’m sure there’s nothing good to report.
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