Sunday, September 14, 2008

Change partners again.

It's speed dating from Hell.
Bloomberg is now reporting (a euphemism for "rumormongering," apparently) that, in a huge smackdown to Lehman Bros, Merrill Lynch is in merger talks with BofA, who only last night was reported to be the likely lead buyer for Lehman Bros. in a consortium that also included JC Flowers and CIC:
Sept. 14 (Bloomberg) -- Merrill Lynch & Co., the third- biggest U.S. securities firm, began merger talks with Bank of America Corp. after its share price fell by more than a third last week, people with knowledge of the negotiations said.

Furthermore, Bloomberg reports that AIG is now "in talks" with KKR and JC Flowers, seeking additional capital, which of course everyone needs tons of.

Capital. In a credit contraction, capital isn't just in short supply, it's in ever-decreasing supply. Formerly inflated asset values come down to earth with varying velocities. You've heard the saying, "A banker is someone who lends you money when the sun is shining, but demands it back when it's raining." "How unfair," you think. "I'll bet they don't live by the same rules." Ahh, but they do.

Merrill's smart. Nevermind that they didn't need any additional capital two times in the past two months. The time to talk merger is before your stock drops 77% in a week. But still, Merrill Lynch? That seems to have the potential to be psychologically devastating, a real shaker of "investor confidence." No wonder S&P futures are down 2.3% overseas.

And what about Lehman, who Barclays walked away from, who was supposed to be on the "to buy" lists of BofA, JC Flowers and CIC? Who knows? As of this writing, they are drawing up a bankruptcy filing. If they can't get a bid that's fair, this apparently is the best move. However, it ain't over 'til it's over.

Seperately, can anyone think of who might be enjoying the world premier of "Nightmare on Wall Street, part IV?" It kind of begs the question, "what do bear raids and bank runs have in common with hijacked jets and skyscrapers?"

Note the respite in the run on publicly held investment banks since Bear went down lasted about as long as the temporary moratorium on naked short selling, which expired Aug. 12. Almost immediately, financials sold off, according to MarketWatch. First, Fannie and Freddie were in the cross-hairs. Once they were out of the way, Lehman, then AIG and Merrill.

For now, that's as far down that road as I'll go.

Does Bloomberg pay its staff by the headline or something? They seem to take the buckshot approach to publishing them: fire enough and something meaningful might result.


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