As Merrill Lynch announced that it will be taking additional write-downs of at least $5.7bn in the third-quarter (talking the firm's writedown total to a massive $46bn since the credit crisis began last year), management and staff over at Merrill are left to reflect on a decision made by senior officials of their firm last summer which directly affected the viability of two Bear Stearns hedge funds (and ultimately the future of Bear Stearns itself), and, more significantly, caused Merrill itself to sustain huge losses and severe capital adequacy problems. This decision was perhaps the worst ever made by anyone at an investment bank. Here's the story, originally flagged up by Bloomberg earlier this year.
Merrill Lynch came out and stunned the markets Monday, announcing that it would sell $30.6bn of toxic securities (which it had valued at $11.1bn as recently as 30th June) to an affiliate of private equity firm Lone Star for just $6.7bn. This represents some 22 cents on the dollar on the original book valuation. Merrill will also provide funding for around 75% of the purchase price of the securities.
Joining the mass of speculation on the subject of what Lehman CEO Dick Fuld intends to do to get his firm back on the straight-and-narrow, is The Wall Street Journal. In its 'breakingviews' section the newspaper reflects that Lehman 'may need to lop off two limbs (to survive) - one infected, the other healthy'.
Bloomberg reports that a former JPMorgan London-based employee has taken the firm to a UK employment tribunal, claiming that she suffered racial bias during her year-long stint with the company.
Reuters reports that Merrill Lynch analyst Guy Moszkowski recently met with Goldman Sachs executives, including the firm's Chief Financial Officer David Viniar. He has made some interesting observations following the meetings.
Citi is a company in turmoil. The firm has suffered billions in asset writedowns which has resulted in multi-billion dollar losses in each of its last three quarters. Its share price is down another 36% this year, and thousands of staff are being laid-off as part of CEO Vikram Pandit's massive restructuring plan. And yet the Chairman of the investment bank, the very unit that is responsible for many of Citi's problems, Michael Klein, is being paid an incredible $28.8m just to keep him from working for a competitor for the next 15 months (Klein announced his resignation from Citi last week). This is utter madness.
The acquistion of Bear Stearns and thousands of it employees looks like shaping up to be a bit of a nightmare for JPMorgan Chase CEO Jamie Dimon. Here Is The City is hearing that, as the credit crunch begins to impact business over at the new enlarged firm, both sets of staff are becoming increasingly vocal, claiming that they are being treated unfairly. And the situation is not helped by the differing ways staff view the Bear takeover - JPMorgan staff talk of it as a 'rescue', whilst many former Bear staff still see it as a 'steal'.
The Wall Street Journal reports that John Pickett, the man who ran Citi's London-based hedge fund CSO Partners, filed a UK Employment Tribunal complaint last month, seeking unspecified damages from the company for forcing him out of the unit. Pickett left earlier this year as CSO ran into difficulty after too much money was placed into a single investment that subsequently went bad. The fund eventually failed.
Reuters reports that Morgan Stanley analysts expect Citi to take an additional $7bn in CDO-related writedowns this year, and to raise $11bn more in capital. The analysts have, however, upgraded Citi to 'equal-weight' from 'underweight'.
Overall 50.8% of the respondents to our 2007 Martin Ward Anderson-sponsored 'Bonus Satisfaction' poll said that they were at least satisfied with their bonus lot last year - that's up from 38.8% last year.