Trading Merrill's Troubles
In a broad move to clean up its troubled balance sheet after hours Merrill Lynch announced plans to sell a big slice of its asset-backed securities and issue new stock to raise $8.5 billion of fresh capital.
“Merrill management is raising a lot of capital after saying they didn’t need to," says CNBC’s Charlie Gasparino on Fast Money. “Investors are going to wonder if management knows what it’s doing,”
The world's largest brokerage, struggling to right itself as the credit crisis continues, said Singapore's Temasek Holdings agreed to buy $3.4 billion of the new shares. Merrill's management also plans to buy 750,000 shares of common stock, which is down some 54 percent in the past year.
Though capital-raising efforts are generally applauded, this move may well cause anger among shareholders because it dilutes the company's stock. Chief Executive John Thain, who joined Merrill Lynch last year, had vowed in the past he wanted to avoid using a public offering to raise money.
“John Thain is clearly running the company with a very aggressive stance,” observes Dylan Ratigan.
“But to take a 4 billion dollar hit on those assets,” adds Karen Finerman. “I just don’t know.”
Traders, how would you play it?
You have no idea what you’re buying when you’re buying the financials,” says Jeff Macke. They don’t even know. And this illustrates the fallacy of pursing the shorts.
I’m oddly interested in this stock, says Karen Finerrman, but I don’t own it.
I’d buy puts on the Financial Select Sector SPDR or I’d get long the ProShares UltraShort Financials ProShs , counsels Pete Najarian.
Doug Kass put a note out Monday morning that said to sell Merrill, adds Charlie Gasparino.
> Merrill to Take $5.7 Billion Writedown, Sell Shares
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Trader disclosure: On July 28, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (HAS), (DIS), (WMT), (ATVID), (MSFT); Adami Owns (BTU), (C), (AGU), (GS), (MSFT), (NUE); Finerman Owns (GS); Finerman's Firm Owns (MSFT), (SUN), (TSO), (VLO); Finerman's Firm And Finerman Own (C), (C) Leaps; Finerman's Firm Is Short (BBT), (XLF), (IYR), (IJR), (MDY), (IWM), (SPY); Finerman's Firm And Finerman Own (C), (C) Leaps; Najarian Owns (CSCO) Calls, (YHOO) Calls, (SKF) Calls, (WLT) Calls; Najarian Owns (TSO) And Is Short (TSO) Calls; Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (XLF) Puts