O’Neal Writedown Erased 20% of Shareholder Equity
Posted by Eddy Elfenbein on October 30th, 2007 at 10:08 am

These numbers surrounding the losses at Merrill Lynch (MER) are staggering:

The real damage to shareholders came with Merrill’s $8.4 billion writedown. It is the biggest in the history of Wall Street and wiped out four quarters of growth in shareholders’ equity, according to Merrill’s published figures. The charge, mostly for collateralized debt obligations and subprime mortgages, left the New York-based company with $38.8 billion of assets minus liabilities.
Losing “20 percent of shareholders’ equity in one fell swoop is a serious blow,” said Robert Willens, the accounting analyst at Lehman Brothers Holdings Inc. in New York. “It might take them two to three years to earn that capital back.”
The writedown, which has ruined O’Neal’s 21-year career at Merrill, is more than the world’s biggest brokerage earned before taxes from fixed-income sales and trading in the past three years, according to estimates by Sanford C. Bernstein & Co. The decline may weigh on Merrill shares, this year’s second- worst performer among the five biggest U.S. securities firms, because many investors use book value to price the stock.

Least Mature Post of the Day
Posted by Eddy Elfenbein on October 29th, 2007 at 2:08 pm

I think this is why they invented pseudonyms.

(Via Luskin)

Why Is Stan O’Neal Gone?
Posted by Eddy Elfenbein on October 29th, 2007 at 2:00 pm

This graph might help explain it.

Goldman (GS) must be doing something right. The stock is at another new high today.

Next Year’s Buy List
Posted by Eddy Elfenbein on October 29th, 2007 at 10:22 am

Each year, I unveil the new Buy List in mid-December, and I’ll start tracking it on January 1. I’m not even close to making the new list but, as usual, it will closely resemble this year’s list.
Most of the current stocks will stay on, but here are the stocks I’m thinking of ditching. Fair Isaac (FIC), Fiserv (FISV), Graco (GGG), Harley-Davidson (HOG), Sysco (SYY), Varian (VAR) and WR Berkley (BER).
Of course, this isn’t final but I wanted to let you know my thoughts beforehand.

WSJ: O’Neal at Merrill
Posted by Eddy Elfenbein on October 28th, 2007 at 2:41 pm

Not much of a surprise:

Merrill Lynch & Co. Chief Executive Stan O’Neal has decided to leave the firm, according to a person familiar with the matter.
An announcement on his departure could come today or Monday morning, this person said. The firm’s board of directors is expected to do a broad search to find a replacement and will look internally and externally.
Those in the running for Mr. O’Neal’s job include Laurence Fink, chief executive of money manager BlackRock Inc. and Gregory Fleming, Merrill’s co-president. There could also be some power-sharing arrangement involving the two men, or a temporary solution to give the board more time to find a permanent replacement. Bob McCann, head of Merrill’s huge brokerage arm, is also considered a candidate for a top job, according to Wall Street executives.
Mr. Fink’s name has been mentioned repeatedly over the past week, but people familiar with the matter said the board hasn’t had extensive discussions with him.
Directors have grown increasingly frustrated since Merrill announced $5 billion in write-downs three weeks ago. In the past week, the size of the hit grew by more than $3 billion, and Merrill reported a $2.24 billion net loss for the third quarter. Analysts say several billion dollars in additional write-downs may be in store.

Oil Over $90
Posted by Eddy Elfenbein on October 26th, 2007 at 3:30 pm

Barry Ritholtz has a great post looking at the rise in crude. He identifies five crucial factors:

1. Increasing Global Demand: Booming growth in China and along the Pacific rim is only the beginning of the global story. India, Korea, Russia, Brazil, and Australia are expanding. Even “old Europe” has experienced a spurt in growth. This may be an old story, but it has yet to fully run its course.
2. Falling U.S. Dollar: The dollar is at 15 year lows versus a basket of currencies. Blame the Federal Reserve for failing to protect the currency, and forcing capital to go where its treated better.
Fun thought of the day: Imagine if every time Treasury Secretary Hank Paulson said “We have a strong dollar policy” — and the dollar dropped yet further, his nose grew another inch, Pinocchio-style. I originally was going to suggest a college drinking game where you do a shot each time, but I wouldn’t want all those alcohol-related deaths on my conscience.
3. Wars in Iraq, Afghanistan: Its why I flipped bullish on Crude way back in 2002. The two hot wars in the Middle East have increased tensions, reduced Iraq’s oil output, and generally led to higher terror premiums for Crude Oil. Future administrations should take note of this simple formula: Mid-East War = Higher Crude Prices.
4. Supply constraints: US crude oil stocks unexpectedly fell by 5.3 million barrels last week, and we have a variety of infra-structure issues contributing to this factor. Globally, there is a tight supply of ships, refineries, pipelines, and storage facilities. This contributes to a minimum amount of reserve — no buffer — which means Crude Oil Futures fluctuate even more than they might otherwise.
5. Saber-rattling against Iran: The increased jaw-boning against Tehran in general and the Revolutionary Guard in particular. A variety of analysts have noted that threats of US sanctions against Iran and tension on the Iraqi border had also helped fuel the oil rally.

Barry has been rightly critical of the government’s inflation data for a long time. But what’s interesting is the prices at the pump haven’t risen nearly as much as crude prices.

Looking at the Credit Crunch
Posted by Eddy Elfenbein on October 26th, 2007 at 3:10 pm

Goldman Record: 299 New Directors
Posted by Eddy Elfenbein on October 25th, 2007 at 11:07 am

I was passed over. Again.

Goldman Sachs promoted a record 299 people to managing director, the company’s second-highest rank after partner.
Managing directors are appointed annually, while partners are named every other year. The promotions take effect on Dec. 1, the start of the firm’s new fiscal year, the company said in a statement yesterday. Last year Goldman named 262 new managing directors and 115 partners.
Chairman and CEO Lloyd Blankfein and Goldman set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, surpassing the record for all of last year.
Partners and managing directors are typically the highest paid of the firm’s 29,905 employees. Fifty-seven percent of the new managing directors work outside the U.S. and 19 percent are women.
Including the new promotions, Goldman now has 1,384 managing directors and 383 partners. The largest portion of the new managing directors work in investment banking, said a spokeswoman for the firm.
Of the new managing directors, 30 percent are in Europe, the Middle East and Africa, 10 percent are in Japan, and 17 percent are in the rest of Asia, including China and India.

Bernanke Warns
Posted by Eddy Elfenbein on October 24th, 2007 at 12:21 pm

Bernanke Warns on US Housing, Economy
Bernanke warns stock investors
Bernanke warns against ad hoc regulation of derivatives
Bernanke warns of economic ‘drag’
Bernanke Warns of Possible ‘Crisis’ From Budget Gap
Bernanke warns of worse to come in subprime fallout
Bernanke Warns Inflation Remains A Significant Risk
Bernanke warns of ‘vicious cycle’ in deficits
Bernanke warns about economic isolationism
Bernanke warns of falling economy
Bernanke warns action needed soon on budget
Bernanke warns US about burden of ageing population
Bernanke Warns Of Growing Inequality
Bernanke warns against protectionism
Greenspan home robbed

Aflac’s Earnings Report
Posted by Eddy Elfenbein on October 24th, 2007 at 12:05 pm

Aflac (AFL) has been a great stock for us this year. At one point, it hit $60 a share today making it about a 30% winner for us. Yesterday, the company reported earnings of 85 cents a share, three cents more than estimates. Last year, AFL made 73 cents a share. That’s a decent growth rate.
For the fourth quarter, Aflac sees earnings of 75 cents to 70 cents a share.
This is a busy day for earnings. Later we’ll have Graco (GGG), Fiserv (FISV) and Varian (VAR).