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First on CNBC Interview: Maria Bartiromo Interviews John Thain Merrill Lynch Chairman & CEO on CNBC's "Squawk on the Street" (Transcrip Included)

When: Thursday, January 17 at 9:30AM ET
Where: "Squawk on the Street"

Following is the unofficial transcript of a FIRST ON CNBC interview with Merrill Lynch Chairman & CEO John Thain on CNBC's "Squawk on the Street." During the interview, Thain discusses the writedowns and the fixed income business, among other topics.

BARTIROMO: WE'RE COMING TO YOU LIVE AT MERRILL LYNCH HEADQUARTERS WE'RE IN THE THICK OF THINGS ON THE TRADING FLOOR OF THE FIXED INCOME FLOOR I'M HERE WITH CHAIRMAN & CEO JOHN THAIN.

THAIN: GREAT TO BE ON YOUR SHOW.

BARTIROMO: JUST GOT OFF THE CONFERENCE CALL. CHARACTERIZE THE QUARTER AND THIS WRITEDOWN. BIG QUESTION EVERYBODY HAS IS, IS THIS ENOUGH?

THAIN: OUR BUSINESSES ARE ALL DOING REALLY, REALLY WELL. ONE AREA THAT'S THE PROBLEM IS THE CDO AND SUBPRIME AREA. OUR GOAL HAS BEEN TO WRITE OFF AS MUCH AS WE CAN, TO BE AS CONSERVATIVE AS POSSIBLE AND GO FORWARD INTO 2008 AND WITH A MUCH STRONGER BALANCE SHEET AND CAPITAL BASE AND A GREAT EARNINGS PROSPECT.

BARTIROMO: JOHN, THE BIG QUESTION ON INVESTORS' MINDS RIGHT NOW, IS THIS ENOUGH? HOW DO YOU KNOW YOU WON'T BE FORCED TO TAKE ANOTHER WRITEDOWNIN THE NEXT QUARTER AND THE QUARTER AFTER THAT. HOW DO YOU VALUE AN ASSET THERE ISN'T A MARKET FOR?

THAIN: WHEN YOU LOOK AT THE ASSETS THEMSELVES, WE HAD $15 BILLION AT THE END OF THE SEPTEMBER QUARTER. THOSE ARE WRITTEN DOWN TO 4.8 BILLION. AT SOME POINT THESE ASSETS DON'T GO DOWN ANYMORE BECAUSE THEY'RE ONLY HAVE THEIR INTEREST ONLY COMPONENT, THEIR IO VALUE. THERE'S NOT MUCH DOWNSIDE LEFT IN THESE ON THE ASSUMPTIONS WE'RE USING ON THEM.

BARTIROMO: WHAT ABOUT THE RULES, DOES THAT BOX YOU IN? YOU WANT TO WRITE DOWN AS MUCH AS QUICKLY AS POSSIBLE. THE RULES IN SOME CASES LIMIT YOU. ISN'T THAT RIGHT? YOU NEED THE MARKET TO STABILIZE HERE.

THAIN: THERE'S NOT MUCH OBSERVABLE VALUE IN THE SECURITIES.THERE WAS TRADING. WE SOLD A FEW OF THEM IN THE FOURTH QUARTER.FOR THE MOST PART THESE ARE VALUED BASED UPON ASSUMPTIONS. WE'RE USING CUMULATIVE LOSS ASSUMPTIONS BETWEEN 16% AND 21%.

BARTIROMO: HOW CAN YOU CHARACTERIZE THE RISK HERE AT MERRILL? A LOT OF PEOPLE FEEL THAT ONE OFYOUR BIG CHALLENGES IS TO CONVINCE INVESTORS THAT THERE IS A NEW RISK DISCIPLINE IN PLACE.HOW DO YOU DO THAT?

THAIN: ACTUALLY A NUMBER OF THINGS. THE FIRST THING IS, WE'RE BRINGING IN ANOTHER RISK MANAGEMENT PERSON TO BE CO-HEAD OF RISK WITH ED MORIARDI. THAT WILL BE ANNOUNCED LATER TODAY. THE OTHER THING THAT'S IMPORTANT IS THE RISK FUNCTIONS WILL REPORT DIRECTLY TO ME. THAT WILL EMPHASIZE TO THE ORGANIZATION THE IMPORTANCE OF RISK MANAGEMENT. WE'RE STARTED A NEW RISK COMMITTEE WHICH MEETS EVERY WEEK. IT'S GOT THE HEADS OF ALL THE BUSINESSES, IT INCLUDES BILL McDONOUGH WHO WAS AT THE SCENE OF EVERY MAJOR FINANCIAL CRISIS WHEN HE WAS WITH THE NEW YORK FED. THE FOCUS ON THE RISK MANAGEMENT FUNCTIONS, HAVING THEM REPORT DIRECTLY TO ME, HAVING THE RISK MANAGERS, INCLUDING THE LEADERS OF THE BUSINESSES MEET ONCE A WEEK, I THINK THAT WILL DRAMATICALLY CHANGE THE FOCUS ONRISK MANAGEMENT.

BARTIROMO: CAN YOU CATEGORICALLY SAY THERE WILL NOT BE ANOTHER WRITEDOWN NEXT QUARTER?

THAIN: NO ONE CAN EVER SAY THAT.WE HAVE A BIG BALANCE SHEET. WE HAVE OTHER MORTGAGE-RELATED SECURITIES.THE ANSWER IS NO.YOU CAN NEVER SAY THERE'S NO RISK. WE'RE IN A TRADING BUSINESS. TRADING BUSINESSES TAKE RISKS.THAT'S OKAY. IT'S MAKING SURE WE REALLY UNDERSTAND IT.

BARTIROMO: YOU HAD A GREAT VOTE OF CONFIDENCE IN THE LAST MONTH HAVING BEEN ABLE TO RAISE ALMOST $13 BILLION. WHAT ARE YOU GOING TO DO WITH THAT MONEY?

THAIN: THE FIRST THING WAS TO RAISE MORE MONEY THAN WE LOST.WE LOST 8.6 BILLION FOR THE ENTIRE YEAR. WE RAISED AS YOU SAID, 12.8.AND THAT GIVES US A GREAT CUSHION. IT ALLOWS US TO BE WELL CAPITALIZED UNDER THE VARIOUS DIFFERENT REGULATORY TESTS. AND IT ALSO MAINTAINS OUR RATINGS. SO AS YOU'VE SEEN OR WILL SEE OVER THE COURSE OF TODAY, ALL OF THE RATINGING AS WILL COME OUT AND RE-AFFIRM OUR RATINGS.

BARTIROMO: THAT'S GOING TO IMPACT FUTURE EARNINGS, OBVIOUSLY.HOW MUCH OF A HIT DO EARNINGS TAKE AS A RESULT OF THE CAPITAL RAISED?

THAIN: IF YOU LOOK AT THE COST OF THE CAPITAL, IT IS SOMEWHAT DILUTIVE.WE'RE OPTIMISTIC THAT WE CAN EARN A SUFFICIENT RETURN ON THE CAPITAL. IF YOU LOOK BECOME AT WHAT WE EARNED IN 2006 OR IF YOU COMPARE WHAT WE WOULD HAVE EARNED EX OF MARKS, I THINK IN 2006 WE EARNED 20% ON OUR CAPITAL BASE. I THINK THAT'S A VERY REALISTIC GOAL.

BARTIROMO: IN TERMS OF CONTINUING TO INCREASE AND IMPROVE THE EQUITY BASE, WHAT ABOUT CONSIDERING SELLING THE 20% STAKE IN BLOOMBERG?

THAIN: WE LOOKED AT THAT AND DECIDED WE DIDN'T WANT TO DO THAT. YOU CAN LOOK AT THE EARNINGS STREAM THAT COMES OFF THAT BLOOMBERG STAKE. WE DECIDED WE WANTED TO KEEP IT.

BARTIROMO: WHAT ABOUT RESIZING THE FIXED INCOME BUSINESS? MORE CUTS TO COME?

THAIN: WE HAVE CUT HEAD COUNT ACROSS FIXED INCOME OVERALL, MOSTLY IN THE MORTGAGE ORIGINAL TION SIDE.THE CURRENCY AREA HAD A GREAT YEAR. THE RATES AREA HAD A GREAT YEAR.BOTH HAD RECORD YEARS. WE ARE OPTIMISTIC ABOUT OUR COMMODITY BUSINESS AND COMMERCIAL MORTGAGE BUSINESS. I DON'T THINK YOU'LL SEE SIGNIFICANT HEAD COUNT REDUCTION.

BARTIROMO: IN THE BLACK ROCK STAKE WOULDYOU CONSIDER SELLING ANY OF IT AFTER OCTOBER OF '09?

THAIN: NO. THAT'S A STRATEGIC STAKE AND IT'S IMPORTANT TO US GOING FORWARD. IT FITS VERY WELL WITH OUR HIGH NET WORTH BUSINESS.

BARTIROMO: WE'LL TAKE A SHORT BREAK.WE'RE LIVE. WE WANT TO GET TO THE OPENING BELL. WE'LL CONTINUE TALKING ABOUT THEMERRILL LYNCH BUSINESS WITH JOHNTHAIN. ON THE "CLOSING BELL" YOU'LL HEAR ABOUT THE RETAIL BUSINESS. THANKS FOR JOINING US ON "SQUAWKON THE STREET," JOHN.




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