Merrill Lynch unloads subprime loans

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Kai Ryssdal: Here's what we had going into the working day today: A widely regarded real-estate survey, the S&P Case Shiller Index, showed home prices in May down by their biggest percentage ever and consumer confidence still at a 16 year low. Fairly foreboding, no?

But let me tell you how business journalists -- at least the ones that work around here -- wrapped up our day yesterday: By remarking how interesting it was that after a 10 percent slide in its stock price Monday, Merrill Lynch conveniently waited until after the closing bell to drop it's $5.7 billion bombshell.

Our senior business correspondent Bob Moon reports timing is everything.


Bob Moon: Like a lot of die-hard home sellers still determined to get something closer to their asking price, Merrill Lynch has held out month after month. The financial giant hoped to sell off its mountain of shaky loans since the real estate market began crumbling and Merrill chief John Thain has done his best to reassure shareholders that things should improve ever since he spoke to analysts during a conference call in January.

John Thain: We are optimistic that as the market starts to open up and actually trades really occur that we can actually sell these things at or near where they're marked. I hope we do in fact see some trading happen.

Now, Merrill Lynch has finally given up waiting. University of Maryland finance professor Peter Morici says the big bank is cutting its losses and selling what little value is left in the loan portfolio.

Peter Morici: $31 billion worth of subprime paper for only $7 billion. That's an enormous loss and it's going to dilute its common stock 38 percent by selling new shares to make up the losses.

That stock sale is aimed at raising $8.5 billion less than two weeks after Thain suggested during yet another conference call that the company was flush with cash.

Thain: We have a record level of liquidity: $92 billion in our liquidity pool. Right now, we believe that we are in a very comfortable spot in terms of our capital.

Professor Morici says Thain has a credibility problem.

Morici: Now investors can only ask, "What else is there?"

Maybe so, but Wall Street did seem relieved that Merrill is finally purging these shaky loans. Its stock gained 8 percent today.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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