Expect Huge Writedowns for Merrill Lynch and Citigroup 2 comments
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Merrill Lynch and Citigroup report their most recent quarterly earnings (and their writedowns) this Thursday and Friday, respectively. Earnings season and options expiration week make for a volatile mix. Expect Mssrs. Thain and Pandit to blow the top off this powder keg. I know I would.
Think about it. If this were a game of Monopoly, Mssrs. Thain and Pandit have the mother of all get out of jail free cards. They can write down to their heart's content and then some while blaming the writedowns on their departed predecessors, Mssrs. O'Neal and Prince.
And what, pray tell, will they do when in the not too distant future they find the writedowns were too aggressive? Why I guess they'll just have to admit their mistake and write the value of the assets up giving a turbo boost to their earnings. It's a pretty simple process really and makes too much sense for it to not happen.
Step 1 - Slash and burn everything on the balance sheet. Just be careful not to mortally wound the capitalization metrics unless you've got a Sovereign Wealth Fund or some other ginormous money investor standing by with a capital infusion.
Step 2 - Blame everything on the prior regime. Remember it's called business, not friendship.
Step 3 - Repeat Steps 1 and 2 next quarter if necessary. If not necessary, proceed directly to Step 4. Word of caution; there are probably no more than two of these bullets in the chamber. Pull the trigger a third time and people will begin to think the problem is you.
Step 4 - Sit back, keep a straight face and get ready to count the money as you blow the doors off a disgustingly easy year-over-year comparable in next year's calendar Q1.
Not sure what kind of odds are being laid on the over/under with regard to Merrill's $5B in expected writedowns and Citi's $12B in expected writedowns. You can participate in and see the results of a poll taken by Bespoke here. Seems to me the smart money would be on the "over". What will be really interesting will be the reaction on the Street.
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This article has 2 comments:
Thx jegan ;-)