O'Neal out

Stan O'Neal, chairman and CEO of Merrill Lynch, has decided to retire from the company effective immediately.

The board of directors has elected Alberto Cribiore as interim non-executive chairman. Ahmass Fakahany and Gregory Fleming will continue as Merrill Lynch co-presidents and chief operating officers.

Countrywide

Countrywide Financial Corp., the nation's largest mortgage lender, said Tuesday it will begin calling borrowers to offer refinancing or modifications on $16 billion in loans whose interest rate is set to adjust by the end of 2008.

There's two aspects of the story on which I'd like to comment...

Countrywide said it would refinance about $10 billion in loans and modify another $4 billion. It also plans to contact borrowers of some $2.2 billion who are late on their loans and having trouble paying because of a recent rate reset. In total Countrywide's plan would reach out to about 82,000 borrowers for some kind of relief. [...] The company estimates some 10,000 borrowers with subprime loans who are now behind on their payments due to their mortgage interest rate resetting will be offered rate reductions by the end of the year.

So if you did the right thing and did NOT overextend by taking on more mortgage than you could afford, Countrywide only has one thing to say to you: SUCKER!

So far this year, Countrywide has completed about 20,000 loan modifications -- a figure that represents less than 5% of the more than 500,000 loans the lender reports were behind in payments as of last month and about 24% of the roughly 82,000 loans the company said were in foreclosure as of September.

There's over 80,000 loans in foreclosure and another420,000 behind? That doesn't mean anything good for Countrywide.

Bank of America moves to cut jobs

Bank of America is acting swiftly in the wake of its disappointing earnings, announcing cuts in its work force that run deeper than investors had foreseen. The bank said late Wednesday that it planned to cut 3,000 jobs, mostly in investment banking, after incurring about $4 billion of trading losses, defaults and write-downs in the third quarter. Brian Moynihan, head of wealth management, will replace Gene Taylor as head of the 20,000-person securities unit, the bank added.

The chief executive, Kenneth Lewis, said he would scale back in investment banking after profit at the division plunged 93% to $100 million. Lewis, who blamed the drop mainly on the company's mistakes, promised to weed out units that posted four or five annual profits "and then give it all back in one year."

"While some of these changes are a direct result of our underperformance, others have been contemplated for a number of months as we looked at how we could operate more effectively," Lewis said. Lewis, 60, was reversing a strategy outlined by Taylor at an investor conference in February, when he said Bank of America would lift corporate and investment banking profit by 70% and revenue by 50% over the next five years. The goal was to gain a top-three share of investment banking in the United States within five years. In the third quarter, Bank of America marked down the value of financing for leveraged buyouts and other lending by $247 million, and trading mistakes led to $717 million in losses. Lewis signaled the job reductions were coming last week during his earnings conference call with analysts when he said the results were "not acceptable."

"I've had all the fun I can stand in investment banking," Lewis said October 18. The next day, Chris Hentemann left as head of global structured products, which had reported a net revenue loss of $527 million.

Merrill (and its CEO) in trouble

Merrill Lynch chairman and chief executive, E. Stanley O’Neal, broached the possibility of a merger with Wachovia without first getting the approval of Merrill’s board, a major breach of corporate protocol.

Bank of America Exits Wholesale Mortgage Business

Today Bank of America announced that it will exit the wholesale mortgage business in order to devote increased energy to its expanding retail channels.

Merrill Lynch Loss Wider Than Expected

From Yahoo...

Merrill Lynch said it was taking a sharper-than-expected writeoff of 7.9 billion dollars for losses in its mortgage activities in the third quarter. Merrill Lynch said the charge was "significantly greater" than the 4.5 billion dollars forecast earlier this month. The investment bank reported a third-quarter net loss from continuing operations of 2.24 billion dollars compared with a net profit of 2.14 billion dollars a year ago. The loss amounts to 2.85 dollars a share, far wide that that the Wall Street consensus forecast for a loss per share of 45 cents.

From TheStreet...

Merrill Lynch stunned Wall Street for the second time this month with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and structured paper. The announcement comes three weeks after Merrill surprised investors by estimating that its third quarter would swing to a loss under the weight of $4.5 billion in writedowns on certain securities. Merrill said the writedown increased after the firm took a second look at its valuation of collateralized debt obligations and subprime mortgage backed securities.

Merrill's third-quarter report has to rank among the worst in modern Wall Street history. The firm swung to a loss of $2.24 billion, or $2.85 a share, from continuing operations from a year-ago profit of $3.05 billion, or $3.14 a share. The firm took a $5.9 billion loss on its in-house trading operation. said $6.9 billion of the third-quarter writedown was related to its CDO positions and $1 billion to its subprime holdings. The firm said its net exposure to those securities dropped from second-quarter levels, but it continues to have $15 billion worth of CDO exposure and nearly $6 billion worth of subprime exposure.

What I (and I'm sure others) want to know is how could the loss be SIX TIMES as large as expected just three weeks ago. What kind of risk management do the guys at Merrill Lynch have in place?

[Obsolete] Bear - Citic Swap

Bear Stearns and Citic Securities [a Chinese firm, not to be confused with Citi] will each invest about $1 billion in each other. In return for its investment in Bear Stearns, Citic will receive securities that can be converted into about 6% of Bear Stearns's outstanding shares. As part of the deal, Citic has the right to buy an additional 3.9% of the brokerage's outstanding shares [for that magic 9.9% share]. In return for its investment in Citic, Bear Stearns will receive a 2% stake in the firm. It has the option to buy an additional 5%.

Edited (3/17/2008): Citic Securities has canceled this investment deal with Bear Stearns. "The situation has changed," said Citic Chairman Dan Kong, after Bear's buy-out yesterday by JPMorgan Chase.

Bank of America Earnings Drop 32%

Bank of America reported that third-quarter earnings plummeted 32% because of problems in mortgage and credit markets.