Merrill Lynch (MER) reported a gargantuan Q2 miss this afternoon after the close, reporting a net loss of $4.7 billion, or $4.97 per share, far exceeding the mean estimate of a $1.91 per share loss. Merrill will sell its 20% stake in Bloomberg for $4.4 billion. All told, Merrill recorded $9.75 billion in various write-downs related to real estate. Most estimates were close to $6 billion.
- Net Revenues: -$2.1 billion, down from $9.5 billion in the same period a year ago
- Net Loss from continuing operations: $4.6 billion compared to $2 billion gain in the same period a year ago
- $348 million write-down in leveraged loans
- $229 million write-down in residential mortgages
- $1.255 billion of exposure in residential mortgage exposure, up from $782 million the previous quarter
- $3.5 billion of exposure in US ABS CDOs
- $9.75 billion total in various write-downs related to real estate. Most analysts were looking for a figure close to $6 billion
We’ll be covering the conference call live at 5:00 Eastern and updating key figures as we have time to process them.
Conference Call Notes (Note: material in quotation marks is paraphrased and is not verbatim)
17:00: Music playing…
17:01: Usual introductory remarks and disclaimers about forward looking statements
17:05: John Thain introductory remarks: Losses mostly attributable to legacy positions in real estate and monolines, which we expect to continue to lose value. Core franchise remains strong.
17:09: Thain continues: MER is well capitalise, $92 billion in liquidity, up from $82 billion the previous quarter. Subprime exposure down 30% to $1 billion. MER is de-risking its balance sheet. Risky assets down 27%. Tier 1 ratio 9.5%. “We are very liquid.”
17:13: Leveraged finance exposure reduced $7 billion… commercial real estate exposure reduced $15 billion.
17:17: Operating expenses, excluding charge, down 11%, driven by reduction in head count.
17:20: Reducing balance sheet… total assets down 7% vs. 1st quarter, below $1 trillion. Risk-weighted assts down 27% in Q2.
17:24: Q&A begins… Lehman analyst asks whether MER would ever sell Blackrock, asks how MER will raise more capital… Answer: “Right now we’re in good position. Will continue to shrink risk-weighted assets. In a comfortable spot.” Blackrock question dodged…
17:30: Citi analyst asks about monoline write-downs, what portion might you get back?… Answer: Depends on which of the monolines, for most, it’s “problematic,” must less likely to get them back.
17:36: Meredith Whitney asks “why don’t you just purge everything and get it over with?”… Answer: “We are selling assets… cut our leverage loan book in half. Can’t get rid of our CDOs, no major trade yet. We’re hopeful we can do it soon. Not going to just liquadate stuff at any price we can get, you wouldn’t want us to sell at these prices.”
17:42: Analyst asks what other assets MER could sell if they needed to… Answer: Same answer as before, we don’t need to sell anything else at this point.
17:50: Goldman analyst asks about book value per share after Bloomberg and other sales… Answer: Can’t say for sure yet because exact details of sales not hammered out yet… will be similar to first quarter.
17:52: Goldman asks how “you guys” invested collateral from synthetic CDOs… Answer: Thain get’s snippy: “I take exception to the ‘you guys’ comment”… “I didn’t create these CDOs.”
17:54: Fox-Pitt analyst asks about Auction Rates… Answer: We’ve been helping our customers. had $22 billion, down to $13 billion, have been refinanced. Everyone is getting their money back.
18:00: Call ends…
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