According to an article in the July 28, 2008 Wall Street Journal, Merrill Lynch (ML) announced a series of moves intended to lower the firm’s risk exposure and further strengthen its balance sheet.
In a further blow to investors already reeling from subprime related investment losses, ML intends to raise approx. $8.5 billion by issuing new shares thereby diluting the stock value of current shareholders by approximately 34%. Sadly this story is looking more and more like Bear Stearns part deux.
The company also plans a third-quarter write-down of $4.4 billion associated with the sale of collateralized debt obligations (CDO’s), a $500 million loss on the termination of credit hedges and an $800 million “maximum loss” related to the potential settlement of other CDO hedges. Merrill also expects to record an expense of $2.5 billion related to a reset payments and $2.4 billion of dividends as a result of the exchange of convertible preferred stock for common stock.
ML is still reeling from the firms huge subprime mortgage exposure and auction rate security (ARS) debacle. The wire house firm, as well as several others, has been under fire from state regulators for alleged misrepresentations in the sale of ARS’s to retail investors.
Some observers believe ML’s bad bet on subprime related debt and structured products may lead to the firm’s ultimate demise. See Evan Cooper’s opinion piece in the June 30, 2008 Investment News.
Those investors who have purchase ML common stock or were sold an ARS by a Merrill Lynch representative should contact our office to determine if you have a claim for damages.