Message: Merrill Lynch & Co's Woes Could Spread
MERRILL WOES COULD SPREAD
Writedowns could total $1-trillion
Janet Whitman, Financial Post
Published: Wednesday, July 30, 2008
Writedowns could total $1-trillion
Janet Whitman, Financial Post
Published: Wednesday, July 30, 2008
NEW YORK - Merrill Lynch & Co.'s stunning fire sale of US$31-billion worth of risky home-loan assets for US22¢ on the dollar could burn other big banks by forcing them to take similar writedowns.
Beleaguered financial giants in the United States and Europe already have written off more than US$400-billion over the past year in soured bets tied to the mortgage market.
Some market observers believe the write-offs could top US$1-trillion as home prices continue to tumble and foreclosures escalate across the United States.
"It's impossible to get a handle on the value of these CDOs," Charles Geisst, a professor of finance at Manhattan College and author of several books on financial market crises, said. "It would seem that sources of new capital are going to rapidly dry up for the banks if the write-offs don't stop. The liquidity crisis is hitting at all levels -- and this could be the next one."
http://www.financialpost.com/story.h...
"It's impossible to get a handle on the value of these CDOs," Charles Geisst, a professor of finance at Manhattan College and author of several books on financial market crises, said. "It would seem that sources of new capital are going to rapidly dry up for the banks if the write-offs don't stop. The liquidity crisis is hitting at all levels -- and this could be the next one."
"It's amazing when you think about the number of people pumping their chests and saying the worst of this is over way back in March and April," he added.
To help offset it's big write-off, Merrill raised US$8.55-billion yesterday by selling new shares for US$22.50 each --a 60% discount to where it's stock was trading at the beginning of the year.
After the ouster of Stan O'Neal over the bank's enormous exposure to the faltering mortgage market, Merrill's newly installed chief executive John Thain announced huge writedowns. Over the past several months, he repeatedly assured investors the bank's troubles were behind it. Then he shocked the market late on Monday by announcing Merrill would sell a huge portfolio of mortgage-related assets for US$7-billion --just months after saying the assets were worth US$31-billion.
The massive markdown could put pressure on CDO prices across the board, giving rival banks less incentive to hang on to impaired assets in hopes prices will recover.
http://www.financialpost.com/story.h...
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