BlackRock Sinks as Merrill Lynch Considers Sale

I have to say that Blackrock's (BLK) chart looks just putrid. Over 20 points ago, I tended to believe that BLK was actually a beneficiary of the Bear Stearns (BSC) fiasco, but now, it seems to be suffering indirectly.

The sudden sell-off in this stock left me wondering what I was missing. It's not uncommon that the outside "retail" investor is not privy to some of the information that moves stocks. And it looks like this is one of those times.

Merrill needs more money

• A sale of common stock would require a large payout to those investors who purchased more than $12 billion Merrill (MER) common and preferred shares earlier this year, The Wall Street Journal reported on Friday.
• Merrill could sell more preferred stock. But the firm has so much of this type of capital that ratings agencies might not give it credit for any additional preferred, the newspaper also said.
• That leaves Merrill's valuable stakes in Bloomberg and BlackRock Inc.

So there we have it. Merrill owns a 49% stake in BlackRock, and could use it as a vehicle to raise capital. This is putting tremendous pressure on the stock in what is already a horrible market in the financials.

What does this mean? I think it means there is a buying opportunity. This is a case of a broken stock, not a broken company. Resolution of this potential sale will send the stock back up, but until then, there is going to be continued pressure. Given the sheer size of the stake, BLK would only be able to purchase a fraction of its own shares, so we may be getting large quantities of BLK common spilling out into the market place.

Given that the news has reached even me, then I think most of the downside is already in the stock. But I can't say that I think it will go right back up immediately. As long as that overhang exists, the stock will be weighed down. This is more of a question of when with the weight be lifted, and how low could it go, before it happens. I'll look to try to add some shares and move my cost basis down from 200, at the 170 area.