Merrill Lynch Obituary & Epitaph: Repent Lest Ye Also Perish Like Our Fallen Brother Lehman

Merrill Lynch (MER) had a long history of being an innovator and leader in the financial services industry. For the sake of brevity, this blog article shall skip its historical accomplishments and focus on recent events surrounding the write-downs besieging Wall Street.

First off, Stan O’Neal should be credited as one of the earlier CEOs to come forward and admit these shockingly huge losses at a time when market pundits dismissed it as an anomaly due to mismanagement. Instead, unbeknown to most, subprime was wreaking havoc upon the street with crack-like epidemic proportions. While many lingered in self-denial, Merrill stepped up and confessed.

Let us fast forward to John Thain who was rightly criticized for fork-tonguing Merrill’s "limited" exposure to further losses and shortly thereafter raising capital. Old John redeemed himself, the firm, and shareholders this weekend by showing the true mettle for which he was once reputed when he provided enough disclosure for Ken Lewis to assess the risks and surprisingly commit to a 70% premium offer for its share price, albeit in stock.

Of course, Mr. Paulson made it easier for Merrill after summoning Wall Street’s Captains of Industry for a weekend dressing down and leaving them to their own devices to clean up their (insert your favorite expletive). To show them he meant business, the "too big to fail" Lehman (LEH) was offered up as a sacrifice to atone for the sins of all bankers. Merrill, wisely realizing that the Gods of Capitalism are not so easily appeased and that it could be next in line for the altar, took the lesson to heart and like the prodigal son went rushing into the arms of Bank of America (BAC) and repented from its wayward behaviour. In return for its repentance, it found redemption and salvation in the bosom of Ken Lewis. Hallelujah and Amazing Grace all rolled into one!

All kidding aside, Wall Street needs to recogize that it is not immune or above the doctrine of moral hazard. American banks can survive this crisis with some prodding and tough love from the Fed and Treasury. The political will for another bailout simply does not exist and it looks like the bankers have overplayed their hand on this one. Along with history and tradition, there is also an abundance of ego behind some of these blue-blooded patricians.

The grim reaper, better known as the economic cycle, has come to claim both. Merge or purge. There is life in the after-life and it’s called consolidation.

If a stiff-necked blue blood like Merrill can swallow its pride and not choke to death, then others can follow this industry leader. The other alternative is the path of stagnation taken by Japan’s banks during its own banking crisis. Sometimes the right thing to do is the hardest thing to do. Merrill did the right thing by salvaging the best it could for its shareholders instead of spiraling down into the oblivion of vainless self-denial. John Thain, old man Charles E. Merrill would be quite proud of you.

Merrill Lynch, 1914-2008… R.I.P.

Repent Lest Ye Also Perish Like Our Fallen Brother Lehman and others before or after him…

Comments

[JudeJin:]

bac's bid served two purposes:
1. propped up lewis' ego and damaged bac's shareholders' interest
2. disrupted the game plan of the shorts for the time being.

but the shorts will prevail! lewis' timid facial expression exposed his weak hand. the shorts will call his bluff.

i suggest learning the art of bluffing be part of any CEO's EMBA training!

2008 Sep 17 09:21 AM

[wallyjm:]

capitalism on trial. 1929 and now 2008. all our savings at risk again. the dollar could go south. stocks in strong companies after the wheelbarrows of dollars to buy a loaf of bread as in germany after ww1. printed money for "bailouts"

2008 Sep 17 12:47 PM