Merrill's Deals Have Some Scary Fine Print

7/29 - "First, there was the sale of $30.6 billion of toxic crap for 22 cents on the dollar ($6.7 billion). Merrill had already written this down to $11.1 billion, so that's only another $4.4 billion loss, but it comes only ten days after the firm said it had written everything on the balance sheet down to "market."...Second, Merrill is lending the buyer of the CDOs 75% of the money to buy them, and the only collateral for the loan is the CDOs. This means that although the CDOs are off the firm's balance sheet, it still has 75% of its original exposure to them. So that's another $5 billion the firm could still lose."

"Third, there is the horrifically dilutive equity deal. Eighteen months ago, Merrill's stock was close to $100. Three months ago, it was at $50. Merrill will sell this equity at about $25. That will leave existing shareholders (including me) owning about 75% of the firm."

"Merrill has now taken $46 billion of writedowns (and counting). It has sold a stake of Bloomberg worth $4.4 billion. And it has been forced to sell about a third of itself at firesale prices. That was some expensive mortgage gambling the firm did a couple of years ago."