Mother Merrill Vows to be More Prudent

$22 billion goes to money heaven. Merrill Lynch (remember them? the ones who snookered Maine taxpayers for $20 million last year in the infamous MainSail II collapse) came out with 2007 Q4 earnings late yesterday, and the picture was not pretty. The New York securities firm lost a cool $10 billion following a write-down of over $14 billion in bad debt and derivatives. This followed on the heels of an $8 billion write-down in Q3. As Senator Everett M. Dirkson once said, "A billion here, a billion there, pretty soon it adds up to real money."

Apropos of yesterday's post about increasing risk aversion in the U.S., I am highlighting remarks made by Merrill's CEO, John Thain, during the conference call: "While the firm's earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet." Thain also said that while Merrill "is still in the risk-taking business," the firm will take steps to tighten up its risk management, including creating a new executive position reporting directly to him. "We're actively looking to reduce our balance sheet [emphasis mine]," he said, adding that he is committed to "flattening out."

If U.S. consumers are similarly resolved to flatten out, then rebate checks from Capitol Hill will do nothing to spur the economy. Meanwhile Merrill, Citigroup, and other Wall Street biggies are recapitalizing by issuing preferred stock to sovereign funds in the Middle East and Asia. Who is in control here?