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BoomBustBlogger Goatmug has literally read my mind in a very recent comment, thus I have taken the liberty to post his comment as an official blog post. This is what I have had my team working on for the past few weeks. I would have had some tangible results earlier, but the financial mess is more involved than anyone could have guessed. That government put option assignment didn't help any either. I would also like to thank all for the supportive words regarding my effort with the blog. Don't worry, I will continue to push out hardcore analysis. I can't guarantee it will always be free, but I can guarantee it will be accessible to those who appreciate its value and will be of value to those who share my values and contrarian perspectives.

From Goatmug:

I just read this, some of Thain's comments regarding capital raising from a Reuters article.

 

By the way, that PNC trade looks good.  I'm convinced $70 area is upper resistance (like steel).  I was so disappointed to see that it came off of $69.50 where I bot more puts.

Third, I just want to remind everyone about how tight the credit markets are.  I go to church with a CFO of a very successful oil and gas company, but they need to refinance debt.  Credit is so tight that their best offer on the table for debt is 13%.... and this is a great company with awesome balance sheet and long track record.  This is why I'm so convinced that the thesis of credit destruction based on the death spiral the banks are in is going to blow so many other companies up.  Because banks are so wounded they are not lending, they are trying to fix their own balance sheet.  This makes credit on "normal terms" for good asset intensive companies impossible to get.  Without credit, the wheels of capitalism grind to a halt.  The FED and Paulson are really noise as they keep yelling about liquidity rather fixing and allowing insolvency.  The further actions of the Fed & Paulson lead to a crisis in confidence as investors around the world see the "free markets" become the "manipulated markets" and the exodus of capital has begun and will accelerate as money looks for better venues and better tax treatment without the "political risk".  (Man, what a rant, I think that was more for me to layout my thoughts, but I hope it was helpful).

 

Also, on MER and taking the big hit, this could be the start of a very bloody weak.  Remember, the first guy to puke this positions out and take the loss is ultimately going to have the highest mark b/c everyone else will need to run for the exits at any cost (unless you're like WFC where you'll just change your accounting practices and recategorize your defination of deliquent!!!

 

Thain's comments.

One of my first priorities at Merrill Lynch was to strengthen the firm's balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital." (December 24, 2007 -- Thain in a statement when Merrill announced a $6.2 billion capital raising)

 

"...These transactions make certain that Merrill is well-capitalized." (January 15, 2008 -- Thain in a statement after selling $6.6 billion of preferred shares to a group that included Japanese and Kuwaiti investors)

 

"We're very confident that we have the capital base now that we need to go forward in 2008." (January 18, 2008 -- Thain as quoted by the New York Times).

 

"...Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market." (March 8, 2008 -- Thain in an interview with France's Le Figaro newspaper)

 

"We have more capital than we need, so we can say to the market that we don't need more injections. We can confirm that we have tackled the problem." (March 16, 2008 -- Thain in an interview with Spain's El Pais newspaper)

 

"In 2007, we lost 8.6 billion dollars after tax, but we raised 12.8 billion dollars in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don't need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I'm sure we have enough capital." (April 4, 2008 -- Thain in an interview with Japan's Nihon Keizai Shimbun)

 

"We deliberately raised more capital than we lost last year ... we believe that will allow us to not have to go back to the equity market in the foreseeable future." (April 8, 2008 -- Thain to reporters in Tokyo, as reported by Reuters)

 

"John Thain has been very clear that we have sufficient capital and don't have a need to raise additional common equity for the foreseeable future. When we raised this capital in January, we had a lot of demand so we went beyond what we needed." (May 12, 2008 -- Merrill President Greg Fleming in an interview with the Times of London)

 

Having read all of this, I'm not sure I'd trust any of them if they say that this is the kitchen sink and they'll never need capital, what do you think?