Merrill Rumors: Q4 Writedown, $5B Infusion

Merrill Lynch is the topic today: As Morgan Stanley and Bear Stearns have both taken substantial writedowns on their mortgage-related portfolios, there is speculation that Merrill will also be taking writedowns when they report in January.

Merrill took a writedown of $7.9 billion in the third quarter, and the game is to guess the size of the fourth-quarter writedown. Fox-Pitt thinks it could be $8.6 billion.

There's an additional fly in the ointment: Merrill (along with Citi and UBS) may have considerable exposure to bond insurer ACA. Should ACA fail, Merrill would end up with more subprime exposure and more writedowns.

The Wall Street Journal is also reporting that Merrill may get up to $5 billion in a capital infusion from Temasek, the investment arm of the Singapore government.

Importantly, the stock is not trading down on any of this.


1) Circuit City Stores reported a loss of 64 cents, twice the loss expected. Comparable store sales of flat panel TVs increased double digits, but total television comp store sales decreased by a high single digit.

What this means is that decreases in projection and tube TVs more than offset the flat panel increase. Camcorders and DVD hardware increased double digits, as did notebook computers. There were double digit declines in audio (CD) sales.

The bottom line: yes, there are strong gains in flat panel TVs, camcorders, DVDs, and notebooks, but there are noteable declines elsewhere.

Circuit City down 30% (!) pre-open to $4.60.

2) Micron Technology missed earnings estimates, and with good reason: pricing is dismal. There were declines of 20% for DRAM and 30% for NAND (flash memory) prices. Ouch. The usual talk that we should see better supply-demand imbalances next quarter. Down 3%, not that it matters: it's at a four-year low.

3) Jabil Circuit beat but gave guidance for 2008 well below analyst expectations, it's down 10% pre-open.

Questions? Comments?