Merrill’s Mozkowski Changes his Tune

Guy Mozkowski penned a research piece in late June that set off speculation Bear Stearns might be in play after its stock was whacked due to its hedge fund issues..

June 24th
``If the firm is not able to resolve its position without a meaningful loss, we think likelihood of a sale rises materially,’’ Moszkowski wrote in a separate note on Friday. He estimated that a buyer probably would pay at least $185 per share, or twice the firm’s book value.

But Guy is coming to his senses, and perhaps realizes that the franchise has been damaged more than the other brokers. His research piece out today throws cold water on the idea of a buyout, and he is putting a hurt on the other brokers as well.

Merrill Lynch downgraded ratings Tuesday on Citigroup Inc., Lehman Brothers Holdings and Bear Stearns Cos., saying the trio are the most exposed among the big financial stocks to reverberations from the ongoing turbulence in credit markets.

All three saw their ratings lowered to neutral from buy, as Merrill becomes the latest to scale back expectations for big financial firms in recent days as they finetune their outlook for upcoming earnings reports

But Bear continues to draw his ire:

Lehman “also does not face the reputational issues Bear has resulting from the Bear Stearns Asset Management hedge-fund problem,” the report concluded.

“We think that the embarrassments of the past several months and the change in senior management are likely to have some chilling effect on business, beyond just the beleaguered asset-management area, and we believe the Prime Brokerage business is likely to have suffered somewhat more than competitors’ because of clients’ concerns from a counterparty viewpoint, even if these concerns are overdone,” the analysts said.

Jimmy Cayne’s recent trip to China is search of investors was enough to pop the stock. He might be able secure a financing terms suitable to his liking, but news travels fast these days, and even the Chinese might be wary by now.

Bear’s stock might test the old lows in the weeks leading up to the next earnings release.  And it had better hold that $102 area, or else. 

Merrill lowers Bear Stearns, Lehman and Citi
Marketwatch
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