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Asset purge no tonic for Merrill

August 20, 2008|Walter Hamilton

Dumping troubled assets for pennies on the dollar may not be the way to bolster a sliding stock price, after all.

Shares of Merrill Lynch & Co. slumped Tuesday to their lowest closing price in nearly 10 years as investors continued to fret about how much the soft economy and a still-steep overhang of bad debt could weigh on the brokerage giant.

The stock slid 92 cents, or 3.7%, to $23.82, falling below its previous multiyear closing low of $24.33 set July 28 -- just before Merrill announced plans to unload mortgage assets once valued at $30.6 billion for $6.7 billion, or 22 cents on the dollar.

Analysts applauded the sale at the time as a healthy purging. But the transaction has had no lasting effect on the firm's moribund stock price.

For one thing, Merrill holds mortgage securities currently valued at $8.8 billion. And because the company financed 75% of the July 28 asset sale to private-equity firm Lone Star Funds, the brokerage would be on the hook for more losses if the value of the assets falls more than 25%.

Another factor depressing the stock: talk that Merrill might slash its dividend to preserve capital.

The $1.40-a-share annual dividend would eat up more than half of Merrill's estimated 2009 earnings, David Trone, an analyst at Fox-Pitt Kelton Caronia Waller, said in a research report last week.

-- Walter Hamilton

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