Facing second quarter loss and write downs that could rise above $6 billion, Merrill Lynch CEO John Thain is considering selling other investments to drum up captial, not just Merrill’s stakes in financial information powerhouse Bloomberg LP, and money manager BlackRock, people familiar with the firm say.
CNBC has learned that one problem that Thain faces is that rating agencies are raising issue with his possible sale of BlackRock because it is considered a core asset that produces a steady stream of revenue for the firm. Merrill owns a 49% stake in BlackRock, which manages mutual funds and pension funds of the firm. BlackRock funds are also sold through Merrill Lynch’s brokerage salesforce, the largest on Wall Street.
For these reasons Thain is trying to minimize the amount of the BlackRock stake he has to sell to produce capital that will plug an expected second quarter loss resulting from a write down that two people close to the firm say could rise above even the $3 billion to $5 billion analysts have been projecting. One person close to Merrill says the write down for the second quarter could exceed $6 billion. Thain is hoping to snare as much as $5 billion for the firm’s 20 percent stake in Bloomberg, and sell other assets to keep any potential BlackRock sale at a minimum following concerns raised by rating agencies, people with knowledge of the matter say.
While Merrill’s stakes in Bloomberg and BlackRock are considered two of the largest holdings of the firm, Merrill has smaller stakes in other firms and entities that could produce much-needed capital, say people close to Merrill.
CNBC was first to report that Merrill and Bloomberg held preliminary talks about selling Merrill’s 20 percent stake in Bloomberg, with Merrill asking for $6 billion and Bloomberg bidding $3 billion. The talks between officials at Merrill and Bloomberg and BlackRock are on going and officials are planning to announce them either before or during the firm’s scheduled release of second quarter earnings on July 17, these people say. CNBC has learned that in recent days Thain has spoken to BlackRock CEO Larry Fink about the potential sale. People at BlackRock say they expect to know as early as Monday or Tuesday if Thain will need to sell a slice of Merrill’s BlackRock investment. BlackRock will be the likely buyer of whatever Merrill tries to unload.
The point man in handling the various assets sales is Merrill president Greg Fleming, a former investment banker with expertise dealing with financial institutions. Fleming is in a unique position of being close to fink—he helped arrange the deal between BlackRock and Merrill in 2006 and is seen as a key facilitator of the talks between Thain and fink, which will pick up steam early this week.
Merrill is the latest firm in the spotlight, and Thain the latest CEO to have to raise capital after he said new funds weren’t needed. Thain initially said that Merrill capital position was strong and that the firm raised more than enough money after earlier write downs were announced stemming from risky bonds on its books. But Merrill is now being hammered by write downs of bonds secured by bond insurers Ambac and MBIA , which recently lost their triple-a rating because of financial concerns, forcing Merrill to take losses on those securities it holds on its books.
A Merrill spokeswoman Jessica Oppenheim didn’t return calls for comment.
Merrill isn’t the only cash-strapped financial firm looking to raise money. People close to beleaguered Lehman Brothers says top officials at the firm are coming under increasing pressure to off load the firm's asset management division Neuberger & Berman. Former partners of Neuberger had been pressuring Lehman's CEO to unload the money management firm because it continues to produce profits even despite Lehman's recent problems of write downs and losses stemming from bad investments.