Some people binge on food. Others on booze. Still others, on things we won't write about here. For Merrill Lynch, without question, its drug of choice was CDOs. And that has analysts buzzing ahead of the financial giant's earnings report scheduled for Thursday morning.
The latest has Merrill cutting 10-15 percent of its staff as it absorbs another $4.5 billion in write-downs on those esoteric and amazingly worthless securities known as CDOs of ABS. (We really should start calling them subprime recyclables
, but who's counting at this point?)
Whatever you call them, Merrill wrote off nearly $24 billion in their value during 2007, and many analysts thought that was that. At least until now.
The guessing game has had pundits taking turns weighing in over the past few weeks: Richard Bove @ Punk Ziegel pegged $6.7 billion in write-downs; Deutche Bank's Mike Mayo proffered $6.2 billion; the inimitable Meredith Whitney jumped in at $6 billion, while Brad Hintz at Bernstein Research decided to take the low road at $4.5 billion. And, lest we forget -- the WSJ, in an exercise of its editorial right to hedge its bets, put the losses "somewhere between $6 and $8 billion."
From our vantage point, the WSJ's take everyone prisoner
approach lacks the fun and clarity tied to the anlaysts, who have pegged a single number, with one added decimal point for good measure. There's no room for error there -- either you get it right, or you don't, and you move on. The WSJ gets to say either "we were close" or "we were right" no matter what
Our prediction? Somewhere between $500 million and $10 billion in write-offs. Here at HW, we're never
wrong, and we plan to keep it that way.
"Merrill set for more write-downs from CDO binge," April 16, 2008, MarketWatch.