Merrill Plans to Cut 3,000 Jobs

Merrill Lynch announced plans to cut 3,000 jobs on the heels of its massive, $6.5 billion write-down for the recent quarter. The write-downs bring the year-to-date totals to more than $30 billion for the Wall Street giant, tied primarily to collateralized debt obligations made up of residential mortgage securities.

As Chris likes to say “the beat goes on” but more telling to me is that the mainstream press is finally realizing that upbeat statements from cock-sure CEO’s is no sign of stability or even corporate viability for the largest banks and firms tied to this mess. Maybe they figured that out after Bear Stearns, but it’s refreshing to see the press acknowledge that maybe the CEO’s who helped lead us in to this mess have no clue as to the way out.

From the Washington Post article on Merrill’s big loss, layoffs and questionable confidence:

Earnings at the third-largest investment bank were dragged down by $6.5 billion in write-downs as the firm restated the value of its troubled assets, including mortgages and leveraged loans to companies with heavy debt. The adjustments bring Merrill’s write-downs for the past three quarters to more than $30 billion. Revenue fell 69 percent, to $2.9 billion.

Investors also appeared to be soothed by John A. Thain, chief executive of Merrill, who sounded largely upbeat during a conference call with analysts. That was in sharp contrast to the previous quarter, when he called the results “unacceptable.” Thain took over the firm in December after heavy losses and questions about the firm’s risk management practices had prompted the resignation of E. Stanley O’Neal.

Though Thain said Thursday that credit conditions are as difficult as “I’ve seen in my 30 years on Wall Street,” he applauded the firm for hitting record revenue in some of its businesses, such as global wealth management. Thain also said the firm was “well-capitalized” and would not have to raise additional funds. In recent months, Merrill raised more than $12 billion in capital, including from sovereign wealth funds controlled by foreign governments.

He expects Merrill to become more profitable as the year goes on. The firm is “optimistic for our results for the full-year 2008,” he said.

But analysts said investors should take such words with a heavy dose of skepticism, noting that previous statements of cautious optimism had turned out to be incorrect.

“This is a crisis of confidence, and a lot of them probably think that sounding confident and acting like things are going to get better may restore investor confidence,” said Chris Carwile, an analyst with SNL Financial. “I think they’re sort of doing it out of necessity, to be honest with you. If they go out and talk about how abysmal the situation really may be, that’s not necessarily going to help their share price.”

“There’s this constant view by many people in the equity markets that we are at a low point and everything is going to rebound by the second half and now is the time to buy,” said Eric D. Hovde, who runs a District-based hedge fund that trades in bank stocks. “It’s ridiculous. What people aren’t recognizing is that the fundamental business model has been materially impacted in a negative way. . . . You are seeing credit deteriorating and starting to spread into other asset classes.” (emphasis mine)

Being honest about the situation may not help your stock price, but it would start to give the market some confidence that a bottom was in sight – which could be the best dose of medicine this market could get – from any angle.