Asset purge no tonic for Merrill
Dumping troubled assets for pennies on the dollar may not be the way to bolster a sliding stock price, after all.
Shares of Merrill Lynch & Co. slumped Tuesday to their lowest closing price in nearly 10 years as investors continued to fret about how much the soft economy and a still-steep overhang of bad debt could weigh on the brokerage giant.
The stock slid 92 cents, or 3.7%, to $23.82, falling below its previous multiyear closing low of $24.33 set July 28 -- just before Merrill announced plans to unload mortgage assets once valued at $30.6 billion for $6.7 billion, or 22 cents on the dollar.
Analysts applauded the sale at the time as a healthy purging. But the transaction has had no lasting effect on the firm’s moribund stock price.
For one thing, Merrill holds mortgage securities currently valued at $8.8 billion. And because the company financed 75% of the July 28 asset sale to private-equity firm Lone Star Funds, the brokerage would be on the hook for more losses if the value of the assets falls more than 25%.
Another factor depressing the stock: talk that Merrill might slash its dividend to preserve capital.
The $1.40-a-share annual dividend would eat up more than half of Merrill’s estimated 2009 earnings, David Trone, an analyst at Fox-Pitt Kelton Caronia Waller, said in a research report last week.
-- Walter Hamilton