Who Will Rescue Merrill?


Eavis joins the Tim

Price/Lily Tomlin school of investment-banking analysis:

It doesn’t look good that O’Neal was allegedly raising the possibility of

a sale at a time when the brokerage was about to report over $8.3 billion

of losses in its fixed income business. It doesn’t make sense to sell out

in the midst of bad news. Unless, of course, more bad news is on the way.

Eavis also points out that the shortlist of potential saviors in terms of banks

who might be interested in buying Merrill is very small. Wachovia just isn’t

set up to run an investment bank, BofA hates investment banking, and Citigroup

has problems of its own. Concludes Eavis:

That effectively leaves JP Morgan Chase in the U.S. and a handful of large

foreign banks. And even these might want to make sure they navigate their

ways through the credit crunch before making a big purchase, like Merrill.

Historically there’s been no shortage of large European commercial banks who

are willing to spend untold billions trying (and usually failing) to get themselves

a strong investment-banking franchise in the US. So maybe someone like Barclays,

having lost out on ABN Amro, might take a stab at buying Merrill. But it’s still

probably more likely that some kind of sovereign wealth fund or Chinese bank

will inject a bunch of capital in return for a minority equity stake.

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