Why is he doing it? Back in early April after Merrill Lynch’s (MER) CEO John Thain first made the same remarks, I wondered what good he thought they would do considering “no one believes what comes out of a banker’s mouth today anyway”.
Now, he is at it again telling anyone who will listen that Merrill will not need additional funds. If the last 10 months have tough us anything, it is that a CEO of a company tied to the financial system ought not be making proclamations about about its health.
Thain’s predecessor Stan O’Neil made them, Chuck Prince at Citigroup (C) did and today they are spectators. Recently GE’s (GE) Jeff Immelt and Wachovia’s Ken Thompson did and both were lambasted by both the media and shareholders when the statements proved to be less than accurate. Thompson is hanging on to his job by a thread. This is not to say there anything nefarious going on, it is just that with the system being so interdependent, events at Goldman Sach’s (GS) or Morgan Stanley (MS) could have a very detrimental effect on Thain’s firm.
If that were to happen, Thain may be force fed his words on a pink slip. Like I said a month ago, Thain gains nothing from making the statements, no one believes him. The only thing they will actually believe at this point are results and even those may be questioned at first.
What Thain is doing is setting himself up for a tremendous fall should events beyond his control turn against him.
Consider Merrill Lynch posted a $2 billion first-quarter loss last month. That just happened to be the third consecutive quarterly loss due to losses in subprime mortgages and collateralized debt obligations.
Also consider Merrill Lynch has recorded more than $30 billion of write-downs since the third quarter, and Thain has said they were planning for slower, more difficult next few quarters.
The bottom line is Thain ought to have learned by now that just because it is sunny today does not mean it will not rain tomorrow.
Disclosure (“none” means no position):Long C, WB, none
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