Merrill Delivered Bonuses Before BofA Deal

Looks like Thain has manage to find billions to honor a quarterly loss of $ 21.5 billion at the expense of the taxpayer...... The imprudence is just unbelievable.......But with no restrictions from government i don´t know if Thain & Co are really the ones to blame.....? I somewhat surprised that the "outrage" in the public is still muted........ See update at the end of post....

Sieht ganz so aus als wenn Thain es geschafft für sein Unternehmen ohne die Übernahme durch Bank Of America längst Pleite gegangen wäre noch mal ordentlich auf Kosten des US Steuerzahlers abkassiert hat...... Diese Dreistigkeit bei einem Quartalsverlust von $ 21,5 Mrd $ verschlägt einem fast den Atem.... Schön zu sehen das die Bedingungen der Rettungsprogarmme ( TARP ) anscheinend keinerlei Sanktionen beinhalten und so diese Selbstbedienungsmentalität keinerlei Einhalt gebieten....Die wirklich Schuldigen sind also nicht ausschließlich bei Thain & Co zu suchen...... Das ganze wirkt natürlich besonders pervers wenn zur gleichen Zeit Gelder für anderen Industrien nicht oder nur zögerlich bereit gestellt werden..... Ich bin nicht nur in diesem Fall mehr als verwundert das der öffentliche Aufschrei immer noch mehr als verhalten ist...... Beachtet bitte das Update am Ende.....


FT Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America.

The timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s chief executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal

Merrill and BofA shareholders voted to approve the takeover on December 5. Three days later, Merrill’s compensation committee approved the bonuses, which were paid on December 29. In past years, Merrill had paid bonuses later – usually late January or early February, according to company officials.

Within days of the compensation committee meeting, BofA officials said they became aware that Merrill’s fourth-quarter losses would be greater than expected and began talks with the US Treasury on securing additional Tarp money.

Last week, BofA said it would be receiving $20bn in Tarp money, in addition to the $25bn that had been earmarked for it and Merrill last year. It was then revealed that Merrill had suffered a $21.5bn operating loss in the fourth quarter.

Despite the magnitude of the losses, Merrill had set aside $15bn for 2008 compensation, a sum that was only 6 per cent lower than the total in 2007, when the investment bank’s losses were smaller.

The bulk of $15bn in compensation was paid out as salary and benefits throughout the course of the year.

A person familiar with the matter estimated that about $3bn to $4bn was paid out in bonuses in December

Nancy Bush, an analyst with NAB Research, described the size of the 2008 Merrill bonus payments as “ridiculous”.

BofA said: “Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill’s chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. BofA was informed of his decision.”

BofA declined to specify when Mr Thain informed the bank of his decision.

A source familiar with the matter says Mr Thain, in the weeks leading up to the December 8 compensation committee meeting, had been weighing the possibility of requesting a bonus of at least $10m for himself before ultimately deciding against such a move.

UPDATE:

Thain Forced Out, NY Attorney General Cuomo Investigating Merrill Bonuses....

But the noise about Thain's compensation is probably less important than how it unintentionally serves to divert attention from the real issue. Many (all?) of the big players in the financial sector are insolvent, period. Their credit losses (whether marked to market or a realistic cash flow basis) are bigger than their net worth. These firms are therefore wards of the state.

Yet we keep pretending that they are still private concerns, still keep the managements in place that created the mess, still allow them to pay themselves orders of magnitude more than average workers. As we have discussed, this is looting and the looting continues

AMEN! Yves from Naked Capitalism nails it one more..... Another good piece comes from Floy Norris

Amen! Denke Yves von Naked Capitalism sagt es wie es ist..... Floyd Norris steht dem in nichts nach.....

Wall Street Paychecks May Wither

It is one thing when the best-paid people seem to be the smartest and the most accomplished. Those who make much less may not like it, but the differential seems understandable. It is another thing when those people are shown to have committed huge blunders that would have driven their companies out of business, and them into the unemployment line, but for government bailouts.So it is now with Wall Street.

In both Europe and the United States, antipathy toward the bailout is rising amid complaints that the money has not helped the economy by encouraging loans, but has kept the bankers in Champagne and caviar

I have to reiterate my view that i still think the "outrage" so far is very very "muted"....

Muß mich wiederholen und darauf hinweisen das ich nach wie vor finde das die bisherige "Empörung" noch immer unverständlich gemäßigt ist......

Ken Lewis / CEO Bank Of America "Banker Of The Year 2008"

Almost as good as the Satyam Award ( see Satyam Computer Services Ltd has won the coveted Golden Peacock Global Award for Excellence in Corporate Governance for 2008 ).......This guy makes the CEO of Deutsche Bank Jo Ackermann quite a likable & competent person.... Compare the quotes with todays news $ 138 Billion Bailout Needed To Save Bank Of America / Merrill Lynch............

Dieser Preis ist fast so aberwitzig wie der von Satyam für erstklassige Corporate Governance ( siehe Satyam Computer Services Ltd has won the coveted Golden Peacock Global Award for Excellence in Corporate Governance for 2008 ).....Verglichen mit diesem Typ wirkt sogar Ackermann von der Deutschen Bank sympatisch & kompetent....... Knapp 3 Monate später benötigt dieser Clown einen $ 138 Billion Bailout .........

FT Alphaville ( Thanks / Danke )!
"We’re good at this".…losing money, that is. Not due diligence or canny dealmaking.

Selected excepts from Ken Lewis (Banker of the Year) on the Bank of America/Merrill Lynch conference call, September 15th, 2008.

Enjoy!

…we could have rolled the dice and possibly could have got it at a cheaper price. We thought the long-term benefits were so overwhelming, it was such a strategic opportunity that we elected not to roll the dice and to go ahead and do it at this time.

Question: can you provide a little more colour on some of the due diligence that was done?

Well, Joe, you want to go over it again in terms of- and the JC Flowers piece is key because they were renewing something- an effort that had already gone on and been very, very extensive.

Errr…

Clearly we had a tremendous amount of historical knowledge both as a competitor with Merrill Lynch and reviewed and analyze the company over the years.

Mr Lewis, have you ever visited the planet earth?

…it’s not as if we don’t have a very significant knowledge of the markets around the asset classes that are most problematic. In addition, as you would expect, we deployed the team that we would ordinarily deploy in these types of situations, which had well over 45 people from our team on site as well as others offsite outside counsel and the like.

Well over45 people!

We’re good at this.

> That they can get away with such generous bailout terms tells you all you need to know..... The comparable Commerzbank/Dresdner Bailout ( see Biggest German Bailout Stands Now At € 18.3 Billion & Counting..... ) terms for honoring such misjudgement looks almost "draconian".....

> Das so ein massives Fehlversagen auch noch mit absolut geschenkten Bailoutkondidionen "belohnt" wird sagt eigentlich alles..... Dagegen sehen die Konditionen bei dem vergleichbaren Commerzbank / Dresner Bailout drakonisch aus

Cramer Jan 2008 "Ten Trillion $ Worth Of Good Calls"

With reassuring news out from Merrill "We Don´t Need To Raise Capital" Lynch i just couldn´t resist to post this piece from Cramer. I think his call from January 2008 for a "Housing & Bank Stock Shortage" is even by his standarts "outstanding" ......

Nachdem mal wieder beruhigende Meldungen aus dem Hause Merrill "We Don´t Need To Raise Capital" Lynch kommen kann ich es mir nicht verkneifen ein Video vom Chefeinpeitscher aus dem Hause CNBC Jim Cramer zu posten. Da lobe ich mir doch schon fast Förtsch, Prior und Co...... Viel Spaß beim selbst für seine Verhältnisse "aussergewöhnliche" Vorhersage.....

Merrill Lynch & Financial Guarantors & Counterparty Risk....

Besides the $ 14.6 billion write down i want to highlight this topic in the release..... When watching MBIA, AMBAC & Co ( see Downgrades ahead: monolines still don’t have enough cash &MBIA, Ambac Tumble, Default Risk Soars After Losses ) i assume the next wave of massive write downs in almost every other bank balance sheet should be coming very soon.... This is to my knowledge the first release from a major institution that views lots of the insurance as "worthless". Unfortunatley they don´t say from wich company thy bought the guarantee ( maybe ACA ? / Update : It´s ACA) . I think we can thank the new CEO for coming clean on this issue. Other will have to follow ....

Neben den 14,6 Mrd Abschreibungen verbirgt sich u.a. auch die nachfolgende Passage in der Veröffentlichung von Merrill . Und das ist eine mit erheblichen Sprenpotential........ Wenn man sich den freien Fall von MBIA, AMBAC & Co ( siehe Downgrades ahead: monolines still don’t have enough cash & MBIA, Ambac Tumble, Default Risk Soars After Losses ) ansieht dürfte hier die nächste gigantische Abschreibungswelle in Stein gemeißelt sein. Der hierfür verantwortliche Versicherer ist ACA ... Das ist meinem Kennnisstand die erste große Bank die klipp und klar sagt das eiin Großteil der abgeschlosenen Absicherung im Prinzip wertlos ist. Ohne neuen CEO wäre das so deutlich sicher nicht gesagt worden. Denke das die anderen nun kaum glaubhaft einen anderen Standpunkt vetreten können.

Merrill Lynch Eranings Report Financial Guarantors:
During the fourth quarter, credit valuation adjustments related to the firm’s hedges with financial guarantors were negative $3.1 billion, including negative $2.6 billion related to U.S. super senior ABS CDOs.

These amounts reflect the write down of the firm’s current exposure to a non-investment grade counterparty from which the firm had purchased hedges covering a range of asset classes including U.S. super senior ABS CDOs. Please see attachment VIII for details of related exposures.

Live-Blogging the Merrill Earnings Call via the WSJ

Adding up Merrill’s $16.7bn writedowns FT Alphaville

Cramer on Monolines Is this really Cramer? This is one of the very rare times he makes sense....MUST SEE!

WSJ on Counterparty Risk

S&P: Bond Insurance Losses Likely Much Higher Calculated Risk

"Enron-esque characteristics" / Deals With Hedge Funds May Be Helping Merrill Delay Mortgage Losses

Enron reloaded! I shouldn´t be surprised. This on top of Off Balance Sheet Vehicles, financing “Vulture Funds” to buy bank assets, UFOs (or Unidentified Financing Objects) & Level 2 and Level 3 accounting etc. makes me believe that this cartoon isn´t so far of the mark......... :-)

Enron lebt! Eigentlich sollte ich nach den letzten Meldungen über Off Balance Sheet Vehicles, die Finanzierung von “Vulture Funds” um Problemkredite aus der Bilanz zu bekommen, UFOs (or Unidentified Financing Objects) und Level 2 & Level 3 Buchführung usw nicht weiter überrascht sein. Evtl. ist der nachfolgende Cartoon doch nicht so übertrieben wie einst vermutet...... :-)

If the SEC, Auditors etc don´t act this should be viewed as another step in the bailout process..... Is still anybody wondering why gold is doing so well......

Sollten die Aufsichtsbehörden, Buchprüfer usw das auch noch durchgehen lassen darf man das wohl als weiteren Schritt in Richtung Bailout werten.....Gibt es immer noch welche die sich Fragen warum Gold so gut unterwegs ist......

Deals With Hedge FundsMay Be Helping MerrillDelay Mortgage Losses WSJ
Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses, people close to the situation said.

The transactions are among the issues likely to be examined by the Securities and Exchange Commission. The SEC is looking into how the Wall Street firm has been valuing, or "marking," its mortgage securities and how it has disclosed its positions to investors, a person familiar with the probe said. Regulators are scrutinizing whether Merrill knew its mortgage-related problem was bigger than what it indicated to investors throughout the summer.

In one deal, a hedge fund bought $1 billion in commercial paper issued by a Merrill-related entity containing mortgages, a person close to the situation said. In exchange, the hedge fund had the right to sell back the commercial paper to Merrill itself after one year for a guaranteed minimum return, this person said.

> I assume that they aslo provide the probably very cheap financing.....

> Ich gehe mal davon aus das Merrill zudem noch die wohl günstige Finanzierung sicherstellt.....

While the Merrill-related entity's assets and liabilities weren't on Merrill's own balance sheet, Merrill might have been required to take a write-down if the entity was unable to sell the commercial paper to other investors and suffered losses, the person said. The deal delayed that risk for a year, the person said.

At issue with any hedge-fund deals is whether there was an attempt by Merrill to sweep problems under the rug through private transactions kept out of view from investors. Some previous scandals, such as the collapse of Enron Corp. and the troubles of Japan's financial system in the 1990s, involved efforts to hide problems through off-balance-sheet transactions.

Ground Zero
Merrill has become ground zero of mortgage problems in the U.S. Last week, the firm announced a $7.9 billion write-down fueled by mortgage-related problems -- one of the largest known Wall Street losses in history -- after projecting just a few weeks earlier that the write-down would be $4.5 billion. Merrill also took a $463 million write-down, net of fees, for deal-related lending commitments, bringing the firm's total third-quarter write-down to $8.4 billion.

The rapid widening of Merrill's losses has led investors to wonder whether other banks and brokerages have a good grasp of their exposure to bad debt. Bank shares fell sharply yesterday, contributing to a 2.6% fall in the Dow Jones Industrial Average. Merrill's shares fell $3.83, or 5.8%, to $62.19 in 4 p.m. trading on the New York Stock Exchange.

Making the Rounds
"Merrill has been making the rounds asking hedge funds to engage in one-year off-balance-sheet credit facilities," Janet Tavakoli, who consults for investors about derivatives, told clients in a recent note. "One fund claimed that Merrill was offering a floor return (set buy-back price)," she said in the note, "so this risk would return to Merrill." Ms. Tavakoli said such transactions would explain how Merrill's mortgage-related exposure dropped in the third quarter.

Thanks to Randy Glasbergen

In recent weeks, Merrill has been scrambling to line up hedge funds to take as much as $5 billion in mortgage-related securities, people close to the situation said, part of what Merrill executives refer to as a "mitigation strategy." Under the strategy, which started earlier this year, Merrill has tried several means of lowering the risk of its exposure to mortgage-backed securities, these people say.

In accounting for such transactions, "the general guiding principle is whether the benefits and risks of ownership were transferred," says Charles Niemeier, former chief accountant for the SEC's enforcement division and now a director of the Public Company Accounting Oversight Board. Legal questions can arise if the seller retains some exposure to the risk of the assets losing value, and if the deal is designed to disguise the picture of a business's financial health.

Other big securities firms with mortgage-related losses have arranged similar deals with hedge funds. As disclosed in a recent page-one article in The Wall Street Journal, Bear Stearns Cos. sold $1 billion of risky mortgage loans to a hedge fund under a one-year pact known as a "mandatory auction call." Bear Stearns agreed to participate in an auction for the loans that provided the hedge fund with a guaranteed minimum return.

Three big U.S. banks are assembling a group of financial institutions to create an investment pool to buy some mortgage-related securities from "structured investment vehicles" that are being forced to sell. That effort, which is backed by the Treasury Department, has also led some investors to question whether the goal is to delay the point at which banks recognize losses on troubled assets. The banks say their aim is to forestall forced selling of the assets.

In mid-July, before the credit crunch worsened, Merrill reported better-than-expected earnings with little impact from exposure to mortgage-backed securities. Asked about the firm's mortgage position on a call with analysts, Merrill Chief Financial Officer Jeff Edwards said: "Proactive aggressive risk management has put us in an exceptionally good position." Two weeks later, Mr. O'Neal personally sent an email to Merrill employees assuring them the firm had such risks well in hand.

By the end of June 2007, Merrill had CDO exposure of $32.1 billion and a subprime-mortgage exposure of $8.8 billion, totaling $40.9 billion. Much of the CDO exposure was in triple-A rated "super senior" slices. These were supposed to enjoy strong protection against defaults, but they began to decline steeply in price in late July.

By the end of September, Merrill says it reduced such positions through sales, hedges and write-downs to $15.2 billion of CDOs and $5.7 billion of subprime mortgages, a total of $20.9 billion. The write-downs totaled $6.9 billion for CDOs and $1 billion for subprime mortgages.

> Nice to see that the call for transparancy is working so well.....

> Schön zu sehen wie die Forderung nach mehr Transparenz so konsequnet umgesetzt wird.....

Bear, Lehman, Merrill, Goldman Traded as Junk, Derivatives Show

Now we have gone from almost junk in March to finally junk. We will see if the rating agencies are correct in giving all the players still very high investment grade ratings. S&P has taken the lead with yesterdays action on Morgan Stanley.

GS & co sind über fast Junk im März nun bei Junk angelangt. Wir werden sehen ob die Rating Agenturen mit Ihrer Einschätzung der hohen A und AA hier richtig liegen.

S&P raises Morgan Stanley debt rating to "AA-minus".
Standard & Poor's on Monday raised its debt rating for Morgan Stanley, citing strength in the bank's core investment banking and trading businesses.

S&P raised Morgan Stanley's senior unsecured debt rating to "AA-minus," the fourth highest investment grade rating, from "A-plus."

>At least for now the market has spoken.......

>Momentan sieht der Markt das etwas anders.......


Thanks to benj

July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.

Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.

bigger/größer

Thanks to Kevin Duffy / LewRockwell

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.


Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, rose to about $110,000 on July 27, from $30,000 at the start of June, indicating growing investor concerns.

`Wall of Worry'
Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody's credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.

About 1 percent of the thousands of companies followed by Moody's have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled ``Broker Securities Climb a Wall of Worry.''

> Here is another one

Losing Value
Investment-grade bonds of brokerage firms lost 0.47 percent on average since June, while securities with similar ratings returned 0.19 percent, according to Merrill indexes. Finance companies are the biggest part of the corporate bond market, accounting for 40 percent of the $2 trillion of debt outstanding, according to New York-based Morgan Stanley, the second-biggest investment bank by market value.


Investors demand an extra 1.25 percentage points in yield to own the bonds of brokers instead of Treasuries, up from a low of 0.64 percentage point on Jan. 29. The wider spread represents an extra $6 million in annual interest for every $1 billion they borrow. ....

Bond and credit-default swap prices suggest Wall Street firms are no safer for debt investors than companies teetering on the edge of investment grade, including mining company Freeport-McMoRan Copper & Gold Inc. in Phoenix and Stamford, Connecticut-based copy machine maker Xerox Corp.


Pimco Buys
Pimco bought bonds of banks and brokers in the past two weeks, expecting them to sustain earnings growth and benefit from global mergers and acquisitions, Kiesel said. Profits at Bear Stearns will rise to $14.53 a share this year and $15.66 in 2008 from $14.27 in 2006, according to the average estimate in a Bloomberg survey of 16 analysts.

> I know that bond manager have a different view than equity investors and i respect kiesel. He has written some great reports like "still renting" but to assume that Bear Stearns will have any increase in earnings is just nuts. Bear is the most dependend on the US bondmarket and has almost no international exposure. The only way is able to increase their earnings is to "exclude" special items like losses in subprime exposure. But this would be like GM exclusing losses from their SUV´s.....But i will not rule out that this time we will see new ways of hiding bad numbers :-)

> Ich weiß das Bondinvestoren ein anderes herangehen als Aktieninvestoren haben und ich mag Kiesel von Pimco wirklich sehr. Er hat einige großartige Reports verfasst. Wie man aber allen ernstes darauf kommen kann das ausgerechnet Bears Stearns auch nur annähernd einen Gewinnzuwachs ausweisen kann ist mir schleierhaft. Bear ist die Bank die fast ausschließlich vom US Bondmarkt abhängig ist und kaum internationales Geschäft vorweisen kann. Der einzig mir denkbare Weg Zuwächse zu erzielen ist indem man zum beliebten Mittel greift und "special items" hearusrechnet. Das wäre in diesem Fall aber so als wenn man bei GM die Verluste der SUV´s herausnehmen würde....Das heißt nicht das dies in den USA nicht möglich ist :-)

Marking Down
Bear Stearns analyst Ian Jaffe raised his recommendation on broker debt to ``overweight'' from ``underweight'' on July 13 because risk premiums increased and the economy is growing. Jaffe, who is based in New York, declined to comment.

CreditSights Inc., an independent bond-research firm in New York, also says investors should buy broker bonds.

Disclosure: Short GS, long UBS