John Thain and Merrill's Capital

There's been some intriguingly contradictory stuff coming out of Merrill Lynch (MER) recently concerning whether it is going to need to raise more capital. CEO John Thain has told just about everybody, including me for my recent Condé Nast Portfolio profile, that he has no plans to raise more capital.

At the earnings conference call he said, according to the Wall Street Journal blog Deal Journal:

“For those of you who like to blog,” said Thain rather archly, “We do not have any plans to raise any additional common equity and [chief financial officer Nelson Chai] actually agrees with that.”

This "Chai" reference was an apparent rebuttal to a CNBC report the previous day, which said Merrill may have to raise more capital and that Chai said, "I wish he didn’t say that," in reaction to Thain comments such as these to the Japanese media.

But was it really a rebuttal? Thain parsed his words carefully, and CNBC followed-up by saying it was right after all. The firm may sell preferred stock (which certainly is "raising capital" in my book).

All I can say is that if Merrill raises capital over the next few months -- by selling preferred stock, its stamp collection, or whatever -- it is going to hurt Thain's credibility.

Comments

[ZenInvestor:]

Agreed. He just should have stuck with 'we continue to review our capital needs', and left it at that for any interview. I don't think there is a lot of doubt that they 'could' raise additional capital if they chose to, so why keep taking any capital raise 'off the table'. I also agree that the 'form' of a capital raise is relevant only on the terms, and is still a capital raise no matter what form it takes.

2008 Apr 21 09:14 AM