Merrill Lynch shocked US investors with yet another $8.5 cash call to offset a $5.7 billion write-down for Q3 as it unloads another $11.1 billion of CDOs at a $4.4 billion loss. This comes after Merrilly CEO John Thain kept insisting that the firm did not need extra capital.
Firstly, Merrill and other Wall Street firms that continue to tap capital markets with massive capital calls (Merrill's will represent 20% dilution) have a major credibility problem--i.e., the losses appear to be far from over. Secondly, the price that Merrill got for its unwanted CDOs is now the market price, implying that other holders of such paper will have to mark down their holdings as well.
IMF's Global Financial Stability Report Market Update, released on July 28 emphasizes that while extraordinary steps by central banks in mature markets had succeeded in capping systemic risk, "However, in the context of the deleveraging process and uncertainty about asset valuations, credit risks remain elevated, indicating that further raising of capital may be needed in a number of financial institutions,"
http://www.imf.org/external/pubs/ft/survey/so/2008/NEW072808A.htmIn other words, it ain't over yet, and trying to catch major financial stocks at the bottom is still like trying to catch a falling knife.
