The Five Dumbest Things on Wall Street This Week
1. Merrill Mishap
Merrill Lynch (MER) stepped in the subprime mess.
The New York-based brokerage firm stunned investors Wednesday by reporting its biggest quarterly loss ever on a stunning 94% drop in revenue. CEO Stan O'Neal said the culprit was the plunging value of the firm's holdings of mortgage-related securities.
"The bottom line is we got it wrong by being overexposed to subprime," O'Neal said on an earnings conference call, "and we suffered as a result of an unprecedented liquidity squeeze and deterioration in that market."Also unprecedented was how Merrill's third-quarter numbers kept getting worse even after the quarter was over. Back on Oct. 5, a week after the quarter's end, the firm warned investors that it expected to lose as much as 50 cents a share for the period. Merrill said losses tied to subprime mortgage securities would result in an asset writedown of around $5 billion -- the biggest on Wall Street in years. But three weeks later, when Merrill reported its finalized third-quarter results, the loss was actually $2.85 a share -- and the writedown was a staggering $8 billion. Disconcertingly, Merrill declined to explain the sudden $3 billion change -- except to claim that the valuations behind the latest writedown "are conservative and appropriate," as finance chief Jeff Edwards said. "Let me just say that what we have provided, again, what we think is an extraordinarily high level of disclosure [that] should be sufficient," he sniffed in response to one question. Merrill's stonewalling led one analyst to observe that while the firm had indeed disclosed more than other brokerage firms, "your peers didn't take an $8 billion writedown." But O'Neal and Edwards continued their dance. "I cannot tell you what the market trajectory might be from here," O'Neal replied, "but ... we are comfortable that we have marked these positions conservatively." Sounds like Merrill's giving us more of the same old bull. Dumb-o-Meter score: 93. "No one -- no one -- is more disappointed than I am in that result," O'Neal said of Wednesday's $2.2 billion loss.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV