Merrill Lynch:
Merrill Lynch said Thursday that it lost $1.96 billion for the first quarter this year, as the meltdown in the housing and credit markets continued to batter the firm.
Much of that stemmed from more than $9.4 billion in write-downs and “credit valuation adjustments” tied to the firm’s holdings in mortgage securities and loans meant to finance leveraged buyouts. The firm also said it intends to cut 4,000 jobs, or 10 percent of its workforce.
The loss, which amounts to $2.19 a share on revenues of $2.93 billion, is a sharp reversal from the $2.16 billion in profit and $9.6 billion in revenue it earned in the same time last year. Analysts surveyed by Bloomberg News had expected on average a loss of $1.79 a share.
John A. Thain, the firm’s chairman and chief executive, acknowledged that the quarter was trying by any measure.
While that is important and everything, and probably a bit depressing, I really wish ABC would get some reporters to the main office and start asking Thain the important questions- does he wear a flag lapel pin? Is his minister patriotic? Will raising the capital gains tax make it tough for soccer moms to fill their Mercedes? Has he ever received sniper fire in Bosnia?
I wish journalists had their priorities straight and would get to the bottom of these pressing questions.
Reverend Spooner
Don’t worry. President McCain will straighten this mess out.
Punchy
Ok, can someone (TOS?) explain in simple, idiot-proof terms, exactly what is a “write-down” loss? Everywhere I look, I see really big numbers followed by the word “billion”, followed by “write offs” or something. dont understand this stuff at all.
So are they just losing the value? Losing the mortgage? Who the fuck can afford to lose 2 bill in one quarter?
John Cole
Punchy- When I see write-off, what I think it is actually saying is:
“That fur-bearing trout farm you thought was worth 20 billion? It isn’t.”
A more in depth analysis would be appreciated, though.
Hillary
I really wish ABC would get some reporters to the main office and start asking Thain the important questions- does he wear a flag lapel pin? Is his minister patriotic? Will raising the capital gains tax make it tough for soccer moms to fill their Mercedes?
Well you know John, these are issues that raise lots of questions in people’s minds. There are a lot of people out there with a lot of questions like these floating around, and I think they’re entitled to answers. Because if ABC doesn’t ask these questions, Fox News will.
Zifnab
Every so often, companies are required to value their assets. Merril Lynch has tens or hundreds of billions of dollars in investments. But as the various markets ebb and flow, those valuations change. If – for instance – Merril Lynch were to invest strictly in the DOW, and the DOW were to drop 2%, then Merril Lynch would be looking at a 2% write-down of assets.
Because mortgages are a funny creature – in that we know how much we loaned you, but we can’t guarantee how much you’ll pay us back – the “value” of a mortgage is more abstract than the value of a stock. Given the vast number of house foreclosures, the declining real estate market, and the loaming recession, Merril Lynch was forced to evaluate its billions and billions of dollars in mortgage-backed securities and declare that a large swath of them weren’t worth the full value of the loan (much less the X% interest they expected to receive from said loan). Instead, they were worth whatever pittance they could get for the foreclosed house at auction.
The reason Merril Lynch is so billions-deep in the red is because they decided to buy up tens of billions of dollars in mortgage-backed securities when owning said securities seemed like a good idea. And they can’t really afford to lose 2 billion in one quarter. That’s why they’re laying off ten percent of their work force.
4tehlulz
>>That’s why they’re laying off ten percent of their work force.
That and to be sure there is enough cash for senior-executive bonuses.
cbear
Sorry, I’m having trouble feeling any sympathy for all the little people who didn’t have the financial acumen to predict our economic future.
You see, when the Supreme Court installed Chimpy as The Preznit back in 2001, I had the foresight to put all my money in shares of K-Y Jelly and Anal-Glide.
Unlike many of you, I realized three things were most assuredly going to happen:
The price of oil was going to go up.
The price of petroleum products was going to go up.
A whole shitload of people were in for a serious ass-fucking.
Looks like I hit the trifecta.
BTW, I’m in the process of hiring several concubines. Apply at I’mRichBiatch.com.
Zifnab
I like that line of thinking for two reasons:
1) Because more news stations should be like FOX News, right? Cause they’ve got high ratings, right? And the most informed viewer base? No? Not so much?
and
2) Remind me again how many Democratic Debates the FOX News channel has sponsored.
Dennis - SGMM
Look for more write-downs (And more bailouts) in May as the next batch of ARM’s resets causing more homeowners to default on their mortgages. The problems will continue to spin out through 2011 at least as the effect of defaults in the ALT-A and no doc mortgages issued at the height of the bubble go into effect. A feedback cycle is being established wherein the decline of the economy, rising unemployment and tighter credit will cause even more defaults leading to more decline, more unemployment and even tighter credit.
Add inflation, caused by rising fuel and food prices to this and we have the dreaded stagflation: inflation without economic growth.
qwerty42
whoa, whoa, whoa … John’s right. I mean this kind of stuff is maybe important to some people, but we need to know more about flag lapel pins. I know if I’m forking over big bucks for medical treatment, I wanna be sure the doc is wearing a flag lapel pin. In fact, like most of us, that is the first thing I want to know. Hell, it’s the only thing I want to know. Same for investments. So maybe we’ll have billions in write-downs. As long as we are covered on the vital lapel pin issue, nothing bad can happen. right?
ThymeZone
Pick up your write-down lapel pins here.
ThymeZone
From Wikipedia.
{ add lapel pins to cart }
D. Mason
John, if journalists were capable of getting their priorities straight we wouldn’t be in this shitty mess(read: Bush admin).
ThatLeftTurnInABQ
nice summary Dennis.
The are two other options I can see on the table (IMHO worse ones).
The first is to suspend Mark-to-Market rules for valuing assets (basically the economic equivalent of sticking fingers in your ears and crying LA-LA-LA-LA-I-CANT-HEAR-YOU when write downs show up), and then we can drag the agony out s-l-o-w-l-y over a decade or two, just like Japan did we their real estate bubble popped back in the 1990’s. That means the tweens now watching “High School Musical” will be parents in their 30’s before we have economic growth again.
The other would be to destroy the bad debt via hyperinflation. Ask Germany how well that worked.
The Other Steve
So I learned something yesterday, I didn’t realize.
In years past, they’ve had similar delinquency rates on loans. But because the houses were still going up in value, the bonds didn’t show losses. That is, someone stopped paying, and it takes them say 18 months to foreclose and then sell the property. But with housing going up 10% annual, they were actually selling the house for more than the mortgage value.
What makes it more difficult today is because houses aren’t selling… the prices are going down, and on top of that they aren’t recovering hardly anything out of foreclosures. So rather than a small loss, it’s a big loss.
This was after a presentation by one of our bond traders.
What did irritate me is the guy was only about 30 years old, and while incredibly smart did actually say the words “Nobody could have possibly anticipated this, because it’s never happened before.”
The Other Steve
That’s going to happen. I think it’s happening now.
It’s the Republican plan to get rid of the deficit.
Tsulagi
That’s basically it. You brilliantly paid $20B for the trout farm, or valued it at that figure. Now, you and everyone else including independent auditors know you can’t find another idiot to pay that much to buy the farm. And as a publicly traded company, you’re not allowed to indefinitely keep worthless assets on the books.
Punchy
Thanks Zif, TZ. Appreciated.
Fledermaus
I was talking with some friends the other night and in a discussion of how economically fucked we are I noted that “the only thing we make these days are dollars”
4tehlulz
>>I think it’s happening now.
You think?
Rick Taylor
I haven’t had a chance to listen to this interview on npr’s Fresh Air, but it sounds interesting.
TenguPhule
You bought a lemon that is now ripping your pants off and preparing to give you a good Rogering.
There is no lube available.
ThatLeftTurnInABQ
Looks like it isn’t just the folks in rural PA who want something to cling to.
Hoarding information:
retail stores no longer reporting monthly sales
libor unreliable, banks not reporting their actual spreads
Hoarding food:
some big grain exporters halt foreign sales
These are stepping stones on the road to autarky:
Dr. BDH
What did irritate me is the guy was only about 30 years old, and while incredibly smart did actually say the words “Nobody could have possibly anticipated this, because it’s never happened before.”
This, as we all know, is the Rice Defence, which has nothing to do with the University or sports.
Do these investment firms give anti-bonuses to their big boys when they lose money? If not, why not? Anybody? Bueller? Ben Stein? Milton Friedman?
erghammer
I’m with you on most things, John, but I don’t understand what your beef is with Merrill. So they lost a bunch of money last quarter; stuff happens. I’m not sure why they have to answer to a bunch of reports (and indirectly, the public) for this. To their shareholders yes, but not to a buch of reporters. Besides, people complain when Big Evil Corporations (TM) make too much money; now we complain when they make too little?
Finally, to the extent that Merrill lost any money, think who they lost it to. They lost it by loaning a bunch of money to a bunch of poor people who otherwise wouldn’t have been able to afford getting into a house at all. Yeah, some of those people are going to get kicked out of those houses, but a lot of them aren’t. So Big Evil Corporation (TM) got taken to the cleaners by a bunch of poor people looking for housing. Boo hoo.