Merrill Sells $31 Billion In Mortgage Securities For 22 Cents On The Dollar, To Issue $8.5 Billion In Stock

July 29, 2008 at 11:00 am  ·  Category: Market Commentary, Stocks

The big story today is Merrill Lynch’s (MER) announcement that it will sell $30.6 billion in face value mortgage backed securities to Lone Star Funds for a purchase price of $6.7 billion -22 cents on the dollar.  Merrill had already marked down these securities significantly, carrying them at $11.1 billion, or 36 cents on the dollar.  So this sale will result in another writedown of $4.4 billion – the difference between what they were carrying the securities at and what they are selling them for ($11.1 – $6.7 = $4.4).

They also announced that they will be selling $8.5 billion in stock to further strengthen their balance sheet.  Because of reset protection in a previous offering, Merrill will have to compensate Temasek Holdings $2.5 billion.  So it looks like this will raise an additional $6 billion in cash.

Analysts have been pretty positive about these moves from Merrill.

Along with today’s announcement, they included an updated table of book value to reflect today’s actions.  It puts Merrill’s book value at $22 a share.

Interestingly, Merrill’s shares traded down to $22 a share this morning where they found support and have since rallied to around $25.  171 million or about 17% of Merrill’s 985 million outstanding shares have traded hands today.  That’s by far the biggest volume day of the last 5 years – no other day has even surpassed 100 million shares – and we still have 2 hours to go.  A look at the charts suggests a bottom of some significance is in place for Merrill (MER 3 Month Chart).

Disclosure: Top Gun has no position in Merrill Lynch (MER) shares.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
No Responses to “Merrill Sells $31 Billion In Mortgage Securities For 22 Cents On The Dollar, To Issue $8.5 Billion In Stock”
  • Interesting that Merril financed the purchase by Lone Star and assumed responsibility for the lossses but does not participate in the gains. In other words they found a buyer to put up a small percentage of the money and get a potentially wasting asset off their books(heads you win, tails I lose).
    The problem with so many of the financial companies today is that its difficult to look through the windshield and predict future revenue while reviewing their assets and figuring out if they’re losing value.
    If you ever read the history of Goldman Sachs and learn how these businesses are cyclical, and creative, you come to realize that it’s not a question of if, but when they will recover. That’s why I think that investors are so engrossed with bottom fishing in these stocks.

    alex  ·  Jul 29, 2008 at 2:19 pm  ·  Permalink

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