Merrill’s Transformation Into Goldman Is Nearly Complete

by StockJockey

Thursday, August 07, 2008 - 10:21 pm

Mother Merrill is six-feet under, and it is just about time to shovel dirt on her grave as Merrill completes its evolution into a clone of Wall Street's apex predator:

Merrill Lynch & Co. said David Sobotka, the commodities trader who stepped in to lead the fixed-income division when it was reeling from mortgage losses, will take over a new unit to make bets with the firm's capital.

The Global Proprietary Trading group will consolidate units that trade stocks, bonds, currencies and commodities, New York- based Merrill said today...Bloomberg

Of course, if you are going to adopt Goldman's model you might as well hire their people; a new arrival from 85 Broad will oversee the trading effort:

The group will specialize in ``liquid markets,'' in which trading is frequent and buyers and sellers numerous.

``The group will continue to look to create superior returns from trading equities, fixed-income products, currencies and commodities on a global basis,'' according to the memo, written by Chief Executive Officer John Thain and Tom Montag, who joined Merrill this week as head of sales and trading (from Goldman Sachs).

The appointment shows Thain’s commitment to proprietary trading even as he moves to rein in risk-taking in areas including real estate and private equity. Capital is constrained following almost $19 billion of net losses in the past year, and Merrill last week had to sell $9.8 billion of stock to bolster its weakened finances.

Sobotka, 51, will report to Montag, 51, a former Goldman Sachs Group Inc. executive hired by Thain to rebuild the firm’s sales and trading divisions. Executives in the fixed-income division will now report to Montag.

Thain might have had to dig in his couch for spare change to make Merrill’s retail clients holding auction rate securities whole, but apparently had a rainy day account to fund the new prop trading initiatives.

Merrill’s private client brokers might be the crown jewel of what is left at Merrill, but he does not seem to be stroking them any more than some of his rainmaking M&A bankers, who continue to twist in the wind and size up Thain’s commitment to their activities.

Unhappy Goldman traders can probably pencil themselves in somewhere on Merrill expanded prop desk should they choose; the last vestiges of Mother Merrill are disappearing as we speak. The old crew might want to grit their teeth in advance of what is surely going to be a reduction in the now generous dividend.

Sorry Win Smith and Dave Komansky...your lifetime of work was blown up in a little over three years.

LIfe is a bitch and then you die...speaking of which, punch up the ticker and chart at NYSE Euronext. Duncan Niederauer inherited a tough situation there; Thain was no fool and left before he had to deal with reality, and is proving to be merely mortal.

Merrill’s stock might test the 52-week lows, but intrepid traders will likely take a shot long expecting the chart to hold. I might even buy some myself tomorrow, but will have to hold my nose while renting the shares.

Genocide might be the wrong word to describe the purge at Merrill under Thain and O’Neal, but Merrill’s culture has been shattered. Lets hope the next six months are better for Merrill’s rank and file, and shareholders, than the past six.

It is not exactly a tall order..given how low that bar is.
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Down a smidge after hours Thursday...after trying to put the auction rate issues behind....

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Merrill Debt Chief Sobotka to Run Proprietary Trading
Bloomberg

Citi, Merrill to Pay $17 Billion To Defuse Auction-Rate Case
WSJ
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The content contained in this blog represents the opinions of underthecounter. 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

Comments:

MER has always wanted to be like GS. Stan O’Neal wanted Merrill to be Goldman so bad. Unfortunately they are no where near close to doing such a thing. BTW, where’s O’Neal at these days while Thain cleans up his mess....

Posted by Agustin Gonzalez on 08/11/2008 at 05:33 PM

AG,

Too bad they did not just be Merrill. Bank up and comers that you can distribute to your awesome retail network and make sure the deals have a shot at working.

Crazy...Stan walks with severance...and might be playing Shinnecock this week.

I still think the stock holds in...now people are picking on other balance sheet items.

Lehman up next...lets see what they can pull out of their hat.

Posted by on 08/13/2008 at 09:40 PM

Jock-

what do you think about LEH? will they manage the crisis or go bought out?

Posted by Agustin Gonzalez on 08/16/2008 at 02:00 AM

I think certain people have been underestimating Dick Fuld.

The Lehman guys are wily-the ones that left back in the 80’s went on to start Furman Selz, sold it to Xerox in 1987 two weeks before the crash and bought it back a few years later. Then they sold it again to ING in the late 90’s for at least twice what it was worth.

Fuld will follow Merrill’s lead to some extent, ditch assets, monetize Neuberger and come out running a much leaner organization.

And I bet in 3-5 years we will made out ok...he might have taken his eye off the ball and let all this happen but very well might make a billion dollars off some sort of deal by 2012.

Too bad for the LEH employees that have been sacked, but that is life on the Street.

He will end up far better off than Jimmy Cayne in any case....Fuld will pull something out of this for himself.

Posted by on 08/17/2008 at 12:15 PM