Merrill Lynch's Thain Places Noose Around His Neck

Why is he doing it? Back in early April after Merrill Lynch's (MER) CEO John Thain first made the same remarks, I wondered what good he thought it would do, considering "no one believes what comes out of a banker's mouth today anyway".

Now he is at it again, telling anyone who will listen that Merrill will not need additional funds. If the last 10 months have taught us anything, it is that a CEO of a company tied to the financial system ought not be making proclamations about its health.

Thain's predecessor Stan O'Neil made them, as did Chuck Prince at Citigroup (C) and today they are both spectators. Recently GE's (GE) Jeff Immelt and Wachovia's (WB) Ken Thompson did, and both were lambasted by both the media and shareholders when the statements proved to be less than accurate. Thompson is hanging onto his job by a thread. This is not to say there is anything nefarious going on, it is just that with the system being so interdependent, events at Goldman Sachs (GS) or Morgan Stanley (MS) could have a very detrimental effect on Thain's firm.

If that were to happen, Thain may be force fed his words on a pink slip. Like I said a month ago, Thain gains nothing from making the statements, no one believes him. The only thing they will actually believe at this point are results, and even those may be questioned at first.

What Thain is doing is setting himself up for a tremendous fall should events beyond his control turn against him.

Consider Merrill Lynch posted a $2 billion first-quarter loss last month. That just happened to be the third consecutive quarterly loss due to losses in subprime mortgages and collateralized debt obligations. Also consider that Merrill Lynch has recorded more than $30 billion of write-downs since the third quarter, and Thain has said they were planning for slower, more difficult next few quarters.

The bottom line is Thain ought to have learned by now that just because it is sunny today does not mean it will not rain tomorrow.

Disclosure: Long C, WB.

Comments

[mother_merrill]

Thain is saying we don't need to raise the money... but he is not saying 'we will never need money'. The difference is he knows that he can exit out of Bloomberg and/or BlackRock. I would rather do that than further diluting common stock or have a higher debt expense. But I also believe him that the credit markets are almost at the bottom and no further right downs are needed.

[todd su]

merrill,

i agree. the point is, why say anything? if he does need more, people will hang him with these statements

no one is buying it anyway

[Dan Tully'sGhost]

Thain is 'talking his book' like any good hedge fund manager. He runs a highly-levered Ponzi scheme that works 99% of the time. Welcome to the 1%.