Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Merrill's Job: Cleaning Up and Moving On

Well at least Stan O'Neal is now gone from the head of Merrill Lynch. Why it took a week after the release of the horrendous 3rd quarter earnings report remains a puzzle. Just how one can be so incompetent to build such a enormous trading position in CDOs and subprime loans that resulted in more than $8 billion in losses remains to be explained. Toomre Capital Markets LLC ("TCM") remains puzzled why it took more than a week for Merrill Lynch to announce the "retirement" of its absolutely incompetent Chairman and CEO.

CNBC was reporting late on Tuesday, October 30th 2007 that the CDO positions at Merrill Lynch were less than $2 (two) billion when the purge of the experienced fixed-income executives like Jeffrey Kronthal and others occurred in July 2006. Apparently the build up of CDO positions to more than $40 billion occurred subsequent to their departure in July 2006 and the height of CDO positions at Merrill Lynch at some point during the second quarter 2007. If this CNBC information is indeed true, Merrill Lynch's risk management function apparently had great difficulty in appreciating just how the firm's position was changing each and every day. After all, what was slightly less than another $200 million in net new position each and every trading day? Yes, slightly less than $200 million in net new position each and every day!!!! Who the heck was in charge of this run-away train at Merrill Lynch??? How in the world did they justify building such big positions that were far out of balance with what Merrill Lynch's sales personnel were able to sell to institutional clients?

The Wall Street Journal has more information on the aftermath of the ouster of now-former Merrill Lynch Chairman and CEO Stan O'Neal in the article Merrill's Job: Cleaning Up and Moving On written by Randal Smith. One of the key items that the WSJ article reveals is that apparently there is an on-going regulatory inquiry by the enforcement staff of the Securities and Exchange Commission into the adequacy of Merrill's disclosures to investors about an $8.4 billion write-down that fueled Mr. O'Neal's ouster. One might guess that there was not sufficient disclosure if Merrill reported that were insignificant losses at the end of the second quarter 2007, approximately $8.4 billion in CDO losses at the third quarter (up from $5 billion just a three weeks earlier) and supposedly another $4 billion coming in the fourth quarter. Does one think that there truly was sufficient disclosure?