Merrill Lynch unloaded some $30.6 Billion in distressed CDO's for 22c/$ to Lone Star, and issued $8.5 Billion in equity. The biggest buyer was Singapore's Sovereign wealth fund - to the tune of $3.4 Billion. I think that while John Thain wanted to get Merrill on track as quickly as possible, twenty two cents a dollar is a dismal number - in tune with what collection agencies sometimes pay for unsecured debt. There is no way that the real estate that backed these CDO's will tank by 78%. Even assuming loan to equity values as ridiculous as 125%, the numbers do not make sense. Citibank's 56c/$ makes more sense to me.
Anyway, Thain has fast tracked Merrill Lynch's recovery by biting not a bullet, but by swallowing a grenade and hoping that it does not explode. Merrill will recover - like they always have when they go through hard times, but I think that Thain needs to be second guessed this time around..... While he did work miracles at Goldman Sachs and Archipelago/NYSE, I am not a believer this time around [I am willing to eat crow a few years down the road - not if MER re-emerges from the ashes - but if the sale of the CDO's turn out to be a good decision].
Bapcha
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