Blackrock Beatdown Getting Late in the Game?
Is John Thain a big fat liar? No, of course not, but running a financial services firm in this environment is certainly challenging, and unless you have a crystal ball, you might have to eat your words:
The nation's biggest brokerage reportedly is close to selling its stake in Bloomberg L.P. and BlackRock Inc. (BLK-NYSE) amid a cash crunch. Merrill is expected to report a $6 billion write-down, exceeding analysts' expectations, when it reports second-quarter earnings next week.
Though Merrill could raise up to $17 billion from the sale of those stakes, it's likely only to sell a fraction of that in order to value its existing stakes. Merrill carries Bloomberg at zero. If it sells part of it, it can hold the rest on its books at a value set by the sale price..... Now, current CEO John Thain is backtracking in both strategy and words. In January he told analysts "It [BlackRock] remains a strategic asset from my perspective. It is not something we would look to sell."
That he's doing so now represents a firm desperate, but also betting it can make it back in the long run, kind of like someone borrowing against their future. MarketWatch
The Street has been shooting against Blackrock for weeks now, but the selling has really picked up speed over the past few days. But pressing the trade to the shortside might be getting a little dangerous. After all, who does not know this story by now?
The sale of a full or partial stake in Blackrock was a done deal, in my eyes, almost a month ago:
June 13th
The nasty little selloff in Merrill’s (MER-NYSE) stock today, spurred by Charlie Gaparino’s CNBC Powerlunch report on Thain’s trial balloon is a clear example; the brokerage stocks, outside of Goldman, cannot be bought until the money is raised. Lucky for Merrill they have some choice assets to put on the block.
Blackrock is unlikely to revisit the valuation it was accorded earlier this year at the peak; the stock’s premium to its peers was partially a result of the limited float in the stock. Merrill’s monetization of the sale might not be announced until next week’s earnings conference call. We are getting closer to the end of this process, and the stock will eventually bounce. But from what level?
The pile on against Blackrock was predictable, but it might be one of the few financial franchises left standing. Although it is possible the headwinds remain, depending on how Thain moves forward. A partial sale, and additional overhang, is the last thing Blackrock’s shareholders want to contemplate.
Whatch you say, Mr. Fink?
Somebody sat at $162.40 and bought a bunch of stock today. Nice move, so far.
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There might be a final whoosh, but this is one franchise I want to own.
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Merrill raids its rainy-day fund
MarketWatch
Previously
Time for Thain to End the Pain
1440 Wall Street
June 13th
Merrill Likely to Raise Capital, Post Loss: Lehman Analyst
CNBC
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Positions
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