Due to a technical problem on Wednesday Jan
16, we are upgrading the news management system which will be
completed in coming days.
News Headlines to Jan 16 2008
News Links Thurs Jan 17 and Fri Jan 18th
Jan 18 2008 News Links
Average weekly earnings in Irish distribution and business services were up by 4.2 % in September 2007
European Central Bank reports tightening in Eurozone bank lending in the fourth quarter of 2007
Markets News Friday: Shares of leading US bond insurer plunges 51% triggering fears of deepening in credit crisis
Trichet says underlying Eurozone productivity trends are a “disgrace”
Japanese consumer confidence plunges to more than four year low
Friday Newspaper Review - Irish Business News and International Stories
becomes world's top Gold producer ending South African dominance
dating from 1905
Newspaper Review - Irish Business News and International Stories
Principal news stories from the Irish Times,
Irish Examiner, Financial Times and New York Times.
The Irish Independent reports that up to 1,500 jobs may be lost at SR Technics Ireland, the company
formerly known as Team Aer Lingus, if it loses a key maintenance
contract with the airline.
According to an SR Technics document
presented to staff representatives last week, the Aer Lingus preference
is to take the key routine maintenance contract in-house, in which case
the Irish operation would be closed with the loss of 1,200 full-time
jobs and a further 300 associated positions.
In the past month Aer Lingus has decided to award two of the four
maintenance contracts, one for brakes and wheels, and one for
components, to other companies.
Over the past two days the airline has been in intensive discussions
with maintenance firms hoping to win the contract for the general
overhaul of planes. A decision on that contract is expected later today.
The key contract for SR Technics relates to the routine maintenance,
or "line maintenance" of the Aer Lingus fleet. This contract is expected
to be decided on next week.
In a presentation to trade union representatives, the company
described its Irish profitability as "marginal".
SR Technics bosses said: "We understand that the Aer Lingus
preference may be to insource the line maintenance activity. This would
give rise to significant industrial relations issues affecting both
Closure of the company (SR Technics Ireland) is the likely scenario
in the case where the contract is lost, warned management.
Siptu met with Transport Minister Noel Dempsey yesterday and
expressed its concern that Aer Lingus, which is partly state-owned, was
jeopardising the future of SR Technics in Ireland.
Irish and European law prohibits any intervention by the Government
and it is understood this was communicated to the union.
Nevertheless, the prospect of the closure of SR Technics at Dublin
Airport is bound to cause uneasiness for the Government. As with Aer
Lingus's decision to exit Shannon, it is likely to draw attention to the
Government's decision to privatise the airline.
Politicians will also recall how political turmoil engulfed Aer
Lingus's original decision to establish its maintenance operations as a
separate subsidiary in 1990.
That row was only resolved when the then transport minister Seamus
Brennan gave "letters of comfort" to the 1,500 Team Aer Lingus employees
guaranteeing that their jobs were secure.
When Aer Lingus sold Team Aer Lingus to SR Technics -- then known as
FLS Aerospace -- in 1997, FLS was forced to spend €70m buying out these
letters of comfort.
Siptu president Jack O'Connor said the trade union may insist the
letters be honoured.
He said: "If people are in possession of letters of comfort and
their employment is in jeopardy, that is an issue which will have to be
resolved. He also said the union may resort to legal action in the event
that Aer Lingus does take the line maintenance contract in-house, to
force the airline to re-employ the SR Technics staff.
"We view it (the SR Technics contract) as an undertaking," he
The Irish Independent also reports that the European Commission is planning to clamp down on the way mobile
phone companies charge their customers after the body found that users
are often charged 20pc more than the actual time of their calls because
they are charged by the minute.
The move follows a decision by the
commission to target mobile operators on roaming rates last year.
The commission said it was concerned about the per-minute charges.
"The commission is concerned that customers are being charged on a
per-minute basis instead of the actual time of the call," it said in
a statement. "The difference between billed and actual minutes
appears to be typically about 20pc."
For example, it said that although a customer may stay on a call for
only 20 seconds, the user could be charged for a full minute.
It said it would investigate matters more closely in a report due at
the end of the year, which will also focus on the cost of text messages
and international data services.
EU Telecommunications Commissioner Viviane Reding has raised the
prospect of setting caps on text messages and data services if her calls
to cut costs are not answered.
"I remain concerned about prices for SMS (text messages) and data
roaming services," she said. "We will watch developments very
closely and respond appropriately by the end of 2008."
In terms of prices, EU regulatory intervention has focused on roaming
charges, capped at EU level since last year. The use of mobile phones
abroad now has a maximum charge of €0.30 per minute. In addition, the
commission launched a wide-ranging review of the whole telecoms sector
in November 2007, following the liberalisation wave of the last two
According to the latest Eurostat data for 2004, the EU
telecommunications sector is made up of around 24,000 enterprises, with
a turnover of €398.6bn and added value amounting to €187.2bn.
The Irish Times reports that shares in electronic payments group
Payzone were suspended in London yesterday
until High Court proceedings involving the
company and its chief executive John Nagle
and chief financial officer John Williamson
It was claimed in the High Court yesterday that Payzone chairman Bob Thian
and other non-executive directors of the company had engaged in a "conspiracy"
to secure the removal of Mr Nagle and Mr Williamson.
The company said it would defend the case but needed until today to prepare
its reply to the claims made.
Justice Mary Laffoy was asked to grant what is called a
which would have resulted in the two executives continuing to be paid but only
being allowed to carry out limited duties. This request was rejected.
Payzone was created on December 5th following the merger of Irish e-payments
group Alphyra, which Mr Nagle founded, and UK ATM operator Cardpoint, which was
led by Mr Thian.
On Wednesday, Payzone issued a statement to the stock exchange saying that Mr
Nagle and Mr Williamson had left the company.
Later that day, the two executives secured court injunctions preventing
Payzone from removing them from their positions.
This order was continued until today, when the court proceedings are due to
While he had not, to date, been physically excluded from the company's
premises, Mr Nagle said he feared an effort would be made to do so unless the
defendant was restrained by the court.
It is understood that Mr Nagle spent time at Payzone's head office in
In an affidavit, Mr Nagle claimed that Mr Thian was pursuing "a personal
agenda" to deflect attention from the underperformance of Cardpoint and to
"transfer blame" to Mr Williamson and Mr Nagle.
Sources close to Mr Thian maintained that the decision to remove Mr Nagle and
Mr Williamson was unanimously supported by other board members and directors and
by the majority shareholder, Balderton Capital.
Balderton owns 40.5 per cent of Payzone's shares and on Wednesday agreed not
to sell the stock into the market for at least six months.
Both executives are seeking orders for damages for alleged conspiracy by Mr
Thian and other non-executive directors of Payzone, most of whom are
non-executive UK directors nominated by Cardpoint.
Mr Nagle said the members of the board had acted in flagrant contravention of
the constitutional documents of the company and his contract, and with "utter
disregard" for his reputation.
Mr Nagle said he "utterly rejected" that the company has any "real
or serious" concerns about his management of Payzone's affairs. Paul
Gardiner SC, who is representing the two executives, said the company had
breached the men's contracts.
He also argued that the board meeting at which they were dismissed was not
The Irish Times also reports that Tesco chief Sir Terry Leahy says the
economic slowdown will not curtail the rapid
expansion in Ireland of the supermarket
chain, whose annual sales in the current
fiscal year are likely to come in at around
Despite the downturn, Tesco plans to open a further 10 outlets this year.
The group opened five stores last year, which brought the total number of
outlets to 100. It operates filling stations on sites adjacent to 12 of its
In an interview in Business This Week, Sir Terry said he was unperturbed by
the Government's analysis that the economy has passed a "turning point"
with slower growth on the cards in the period to 2011.
"A lot of what we sell is basic stuff. So we never hit the highs but we
don't suffer from the lows," he said.
The group plans to open supermarkets this year in Kilrush, Co Clare; Tullow,
Co Carlow; Birr, Co Offaly; Bailieborough, Co Cavan; Bettystown, Co Meath; and
Cashel, Co Tipperary.
It plans to open four Express convenience stores in Dublin, at Parnell
Street, Camden Street, Ringsend and Inchicore.
These openings will add some 250,000 sq ft to Tesco's footprint in Ireland, a
little less than the 270,000 sq ft it has added to its total in the current
The chain also officially commissioned its first instore combined heat and
power generation unit in Ireland yesterday as part of its environmental strategy
to reduce carbon emissions and energy bills.
Sir Terry will tonight receive the Sean Lemass Gold Medal for Business
Leadership from Trinity College Dublin and the Irish Management Institute in
recognition of his business achievements and Irish roots.
Tesco achieved sales in Ireland of €2.7 billion in the year to February 2007,
9.7 per cent ahead of the previous year.
Sales growth in the six months to August last year was 8 per cent, down from
11 per cent a year earlier.
Sir Terry declined to put a figure on its likely sales for the full year.
"The business is growing along fine. I think growing sales of 8 or 9 per
cent in an economy that's growing at 4 or 5 is a good performance but it's not
an extraordinary performance," Sir Terry said.
The group does not disclose the profitability of its Irish operation. Sir
Terry would not say whether its operating profit margin here was greater or
lower than the 4.7 per cent Tesco declared for its European division in its most
recent interim results.
He said he was confident, notwithstanding the downturn, that Tesco will open
further stores in Ireland "because there's a lot of catch-up in the physical
infrastructure" of the supermarket sector.
The Irish Examiner reports that
O’Briens sandwich bars will open 15 new stores in
Ireland this year, following its first step into the Canadian market.
The first O’Briens store in Canada opened this week
and is based in Toronto.
It is operated by husband and wife team, Meryem and Manny Singh, who took out a
master franchise on the business.
It is expected that turnover at the store will be as much as €340,000 this year.
The Singhs are also planning to expand into Ontario and British Columbia.
Mr Singh said: “We firmly believe that the
O’Briens concept and product range will prove very attractive to Canadians.
“We are very excited about launching such a strong brand into Canada.”
He added that products at the Toronto store have been sourced locally, including
Guinness Mustard, which is being hand-made exclusively for them by a company in
The store initially opened with 12 people, including a store manager, with plans
to add to this as the business expands, especially on the catering side.
Chief executive of O’Briens, Fiacra Nagle, said: “While we continually look
at international growth based around countries where we already do business, it
is exciting for us to be launching into Canada. We are also extremely excited
about the launch of the largest O’Briens in the world in Belfast later this
O’Briens have yet to launch in the US despite successfully launching in
Australia, China and South Africa.
This year it has plans for 15 new stores in Ireland, with the largest being the
The O’Briens franchise, which was established in 1995 in Dublin, has achieved
global success, having grown to more than 300 stores in 13 countries. The
franchising business generated a group turnover of more than €100 million in
The Financial Times reports that fears that the credit crunch might be
entering a traumatic new phase grew on
Thursday as investors lost confidence in the
insurers that guarantee payments on billions
of dollars in bonds.
Ambac Financial and
MBIA, the world’s biggest bond
insurers, fell 52 per cent and 31 per cent,
respectively, as Moody’s Investors’ Service
raised the possibility that both might lose
the triple-A credit rating on which they
The sector was dealt another blow when
Merrill Lynch said it was writing
down $3.1bn in hedges with bond insurers,
mostly with ACA Capital, a guarantor that
has lost its investment-grade rating and
needs to raise $1.7bn by on Friday to avoid
The triple-A credit rating of the bigger
bond insurers is crucial because any
demotion could lead to downgrades of the
$2,400bn of municipal and structured bonds
This could force banks to increase the
amount of capital held against bonds and
hedges with bond insurers – a worrying
prospect at a time when lenders such as
Citigroup and Merrill are scrambling
to raise capital.
“Significant changes in counterparty
strengths [of bond insurers] could lead to
systemic issues,” said Eileen Fahey,
managing director at Fitch Ratings.
The crisis of confidence in MBIA and
Ambac has been building because of their
exposure to securities backed by assets
including subprime mortgages. Warren
Buffett’s Berkshire Hathaway set up a new
bond insurer last month after New York
state’s insurance regulator pressed him to
The pressure on the traditional bond
insurers rose on Wednesday when Ambac said
it planned to raise $1bn in equity. Just
hours later, Moody’s said it was putting
Ambac’s triple-A rating on review for a
On Thursday, Moody’s said MBIA’s triple-A
rating could also be cut, including ratings
of $1bn worth of capital that it raised just
Standard & Poor’s said on Thursday that
losses for bond insurers could be 20 per
cent higher than previous estimates, raising
expectations that it, too, might consider
lowering its triple-A credit ratings for
Ambac and MBIA.
The fresh credit concerns pushed up the
cost of buying protection against a possible
default by MBIA or Ambac.
“The debt and the equity markets now
both regard these companies as no longer
being triple-A,” said Andrew Wessel, an
analyst at JPMorgan.
“Their ability to continue to insure
new bonds, which is their sole function, has
effectively been diminished by the market.”
The cost of buying protection against
defaults by US companies also rose. The
Markit CDX North America investment grade
index rose 9.5 basis points to a record
111bp, indicating increased concerns about
the chances of defaults. The index gauges
credit risk and has risen from under 80bp
since the start of the month.
Jamie Dimon, chief executive of
JPMorgan, said this week when asked
about bond insurers: “What [worries me]
is if one of these entities doesn’t make
it . . . the secondary effect . . . I think
could be pretty terrible.”
The FT also reports that a plan to increase the use of biofuels in
Europe, to be outlined next week, may do
nothing to help fight climate change and
incur costs that outweigh the benefits, says
an internal European Union report.
unpublished study by the Joint Research
Centre, the European Commission’s in-house
scientific institute, was prepared ahead of
the commission’s meeting next Wednesday when
it is set to endorse plans for biofuels to
account for 10 per cent of transport fuels
in the 27-member EU by 2020.
“The costs [of the target] will almost
certainly outweigh the benefits,” says the
report, a copy of which has been obtained by
the Financial Times. Taxpayers would face a
bill of €33bn-€65bn between now and 2020,
the study says.
“The uncertainty is too great to say
whether the EU 10 per cent biofuel target
will save greenhouse gas or not,” it adds.
EU leaders called for the target last
year as part of a move to cut greenhouse gas
emissions by 20 per cent of 1990 levels by
However, some commissioners have
expressed concerns about the knock-on
effects of using plants for fuel. Indonesia
has seen large street protests this week
over record soyabean prices triggered by US
farmers opting to grow corn to supply the
biofuel industry over soyabeans.
Green groups are also concerned that
forests could be cleared for food crops
displaced by biofuel plantations, although
the commission says it would introduce
measures to avoid this. Corn and palm oil
are among the most popular biofuel sources,
though sugar from Brazil is considered the
most “green” by the JRC as it grows quickly
and produces a lot of energy.
A commission spokeswoman said the
JRC report had not been peer-reviewed. She
said: “It is a contribution to the debate,
we are looking at the whole picture and we
will have sustainability criteria.”
The JRC suggests that it would be more
efficient to use biofuel to generate power
rather than fuel cars. It also suggests that
the separate transport target be scrapped.
It is even doubtful about the merits of
using plant waste, such as straw, since
transporting large quantities to biofuel
factories itself requires fuel.
Adrian Bebb, of Friends of the Earth,
said: “The report has a damning verdict on
the EU policy. It should be abandoned in favour of real solutions to climate change.”
The New York Times reports that the stock market plunged again on Thursday on bad economic news, taking
little comfort from reassuring words by the chairman of the Federal Reserve
or an emerging consensus about a stimulus plan that many worry could be too
On a day when stocks were pushed down another 3 percent on reports
of more weakness in housing and manufacturing — bringing the decline this
year to a stomach-churning 9 percent — all the major players in Washington
agreed on the need for putting extra money into people’s hands quickly.
President Bush publicly confirmed for the first time that he would
propose a package of emergency measures, outlining its basic principles on
Friday, in an effort to restore the eroding confidence of investors and
consumers. The package is expected to include more than $100 billion in
one-time tax rebates for individuals and an opportunity for businesses to
rapidly write off their capital investments.
In a rare sign of his willingness to cut a deal with Democrats in
Congress, White House officials said Mr. Bush would not demand that the
stimulus package include provisions that permanently extend his signature
tax cuts from 2001 and 2003.
In a conference call with Democratic leaders on Thursday afternoon, Mr.
Bush signaled his eagerness to reach agreement. “I think there was a
collective sense that there was no reason why we can’t get something done
quickly,” said Tony Fratto, the White House deputy press secretary. “I think
that was a unanimous feeling on the call.”
Despite the rising prospect of a fiscal pump-priming effort from
Washington, investors on Wall Street remained in a black mood as data showed
that the housing debacle was getting worse and beginning to bring down the
rest of the economy.
The Dow Jones industrial average turned down even as the Fed chairman,
Ben S. Bernanke, began to deliver his widely anticipated testimony to
the House Budget Committee. By the end of the day, the Dow had plunged 307
points; the fall since Jan. 1 is now 9.2 percent. Wall Street started the
Merrill Lynch reporting that it lost $9.8 billion in the fourth quarter,
mainly because of booking $15 billion in losses tied to soured home loans.
Adding to the pessimism, which drowned out the reassurances by Mr.
Bernanke that a recession could be averted, were reports that manufacturing
activity could be slowing even more than analysts had expected, and that
housing starts dropped 14 percent last month and reached their lowest level
in 16 years.
Mr. Bernanke insisted that despite concerns about “slowing growth,” the
economy remained “extraordinarily resilient.”
“It has a strong labor force, excellent productivity and technology and a
deep and liquid financial market that is in the process of trying to repair
itself,” Mr. Bernanke said. “So I think we need to keep in mind also that
the economy does have inherent strengths and that those will certainly
surface over a period of time.”
But James W. Paulsen, a strategist at Wells Capital Management, reflected
the view of many investors that help from Washington would come too late.
“By the time they actually pass anything, it will be past the time we
need it,” Mr. Paulsen said.
Democratic leaders said they were hopeful about reaching a deal in a few
days, but they could end up feuding with Mr. Bush over who should benefit
most from the stimulus measures.
Democrats are drafting a package that would cost about $100 billion and
is likely to include one-time tax rebates for workers, expanded unemployment
benefits and other measures aimed at middle-income and low-income people who
are most likely to spend any extra money immediately.
Mr. Bush and many Republican lawmakers have argued that any stimulus
measure has to include incentives for businesses to spur job creation. But
after speaking with the president by telephone, Democratic leaders said they
were optimistic about reaching agreement.
“The acknowledgment by the president today of the immediate need for a
stimulus package is significant progress,” said the House speaker,
Nancy Pelosi of California, after the call. “In the next few days,
through bipartisan negotiations, we are hopeful that we will agree on
legislation that provides timely, targeted and temporary assistance.”
To be sure, there was grumbling. The Senate majority leader,
Harry Reid of Nevada, was irritated that Mr. Bush had abruptly decided
to outline a plan on his own instead of developing a bipartisan package with
Democrats. “The President’s strategy threatens to unnecessarily politicize
the inevitable bipartisan negotiations we will need to quickly enact
legislation,” Mr. Reid complained.
Mr. Bernanke refused to endorse any specific measures, but he said the
key to success would be to act fast and to focus on temporary measures that
get extra money into the hands of people within the next 12 months. To do
that, he added, Congress would have to pass legislation within the next
month or two.
“In order for this to be useful, you would need to act quickly,” Mr.
Bernanke told the committee on Thursday morning. “Stimulus that comes too
late will not help support economic activity in the near term, and it could
be actively destabilizing.”
Despite repeated entreaties from Republican lawmakers, Mr. Bernanke
refused to endorse calls for making the president’s tax cuts permanent
rather than letting them expire at the end of 2010.
Whatever the merits of that move might be, he told lawmakers, the Bush
tax cuts were a matter of long-term fiscal policy that should not be
entangled with a short-term stimulus program.
Until Thursday, administration officials and many Republican lawmakers
had made it clear that making Mr. Bush’s tax cuts permanent would be a
priority for his last year in office. Those cuts include rate reductions for
people at every income level and sharply lower tax rates on investment
Democratic leaders have been adamantly opposed to any such move, and most
of the Democratic presidential candidates have called for rolling back the
tax cuts at least for families that earn more than about $200,000 a year.
But Democrats had worried that Republicans might try to hold a stimulus bill
hostage to their demands on the Bush tax cuts.
Mr. Fratto, the president’s deputy press secretary, said Mr. Bush was as
determined as ever to make his tax cuts permanent before he leaves office.
But he said the issue of a short-term stimulus is a separate matter.
“The president supports a permanent extension of his tax cuts, and he
supports a short-term growth package, but they are separate,” Mr. Fratto
For economists and for the Federal Reserve, the big question is which tax
cuts or spending measures will produce the biggest and fastest jolt to
Most economists agree that tax rebates are one of the fastest ways to
lift consumer spending. They also agree that stimulus measures are most
efficient when aimed at low-income or middle-income people, because they are
more likely than affluent people to spend any extra money rather than save
According to estimates several years ago by Mark Zandi, chief economist
Moody’s Economy.com, the
measures that produced the biggest “bang for the buck” were increases in
unemployment benefits, which produced about $1.73 in additional demand for
every dollar spent. Tax rebates to all citizens generated about $1.19 for
every dollar spent, while reductions in tax rates produced only 59 cents per
But other economists argue that temporary incentives for business
investment have a powerful effect as well.
Bloomberg News, citing people who insisted on anonymity, reported that
the White House is likely to propose an $800 tax rebate for individuals, a
$1,600 rebate for households and investment incentives for businesses.
Mr. Bernanke told members of the committee on Thursday that even $100
billion would have a significant impact.
The NYT also reports that the outlook darkened for
Merrill Lynch on Thursday as news of a huge quarterly loss sent the
company’s stock plummeting.
Merrill, the nation’s largest brokerage firm,
posted a $9.8 billion fourth-quarter loss, almost matching the deficit
reported for the period by
Citigroup, a company three times Merrill’s size. The loss at Merrill,
which exceeded analysts’ forecasts, reflected $16.7 billion of write-downs
on mortgage-related investments and leveraged loans.
Merrill’s results helped touch off a steep decline in the stock market
and raised concern that the firm might face further losses in the months
John A. Thain, who took over as chief executive in December, called the
loss “unacceptable” but said the company had enough capital after raising
$12.8 billion from foreign and domestic investors this week.
“We’re very confident that we have the capital base now that we need
to go forward in 2008,” Mr. Thain said.
Investors did not share his confidence. Merrill’s stock fell more than 10
percent, to $49.45 a share, as the broader market took its biggest tumble
Analysts said they were concerned that Merrill was still exposed to the
various areas of the troubled mortgage market. They also said Merrill’s
weakened finances and the foreboding economic environment would hamper many
parts of the firm’s business.
“There is still a lot of uncertainty ahead for Merrill,” said Brad
Hintz, a securities analyst at Sanford C. Bernstein & Company. “I suspect
John Thain has no choice but to constrain the trading business pretty
Mr. Thain highlighted the positive elements of Merrill’s results,
including record results in equity capital markets, investment banking and
global wealth management. “The vast majority of our businesses did
really, really well,” he said in an interview.
But Mr. Thain expressed some dismay at the risks Merrill took before he
joined the firm. “They shouldn’t be taking risks that wipe out the
earnings of the entire firm,” he said, referring to the fixed-income
trading desk, many of whose executives have been fired.
Investors seemed to agree. “As painful as it is, we are glad that Merrill
acted as aggressively as it did on both the capital raising and the
write-downs,” said William Tanona, an analyst at
Goldman Sachs. “Nonetheless, it is disheartening to know that the firm
wiped out about four years of book value growth in one quarter.” In 2002-6,
Merrill Lynch earned $22.6 billion in profits.
Mr. Thain has moved quickly to build the firm’s liquidity and capital. He
has also flattened the firm’s reporting structure to “reduce the siloing
that has taken place at Merrill Lynch over the last few years,” he said.
Picking up the pieces is nothing new for Mr. Thain. In his previous job
as chief of the
New York Stock Exchange, now NYSE Euronext, Mr. Thain had to deal with
the fallout over the ouster of the former chairman,
Richard A. Grasso, whose $139.5 million pay package had caused a furor
at the nonprofit institution. Mr. Thain then fundamentally changed the way
the exchange functioned, taking it public, accelerating automation and
ultimately merging the exchange with a giant European board.
He arrived at Merrill amid a storm of controversy surrounding
E. Stanley O’Neal, the polarizing former chief executive. Mr. O’Neal had
pushed Merrill into more aggressive areas — a strategy that was successful
until the subprime market collapsed.
Mr. Thain has since moved quickly to improve risk management and unify
executives. He hired Nelson Chai as the new chief financial officer. And
after releasing earnings on Thursday, the firm announced the appointment of
Noel B. Donohoe to lead the risk department with Edmond N. Moriarty. Mr.
Thain instituted a weekly risk meeting at which the business heads would
report to him. “What’s important is that the risk heads report directly
to me and that the meeting is with the business leaders and it’s a
discussion about the risk across the firm,” he said.
Merrill losses included a $9.9 billion write-down on collateralized debt
obligations, a $1.6 billion write-down on subprime mortgages and a $3.1
billion write-down on exposure to bond insurers, which have come under
tremendous pressure for insuring securities that are defaulting a record
rates. Other areas for write-downs include $900 million in Alt-A and
residential mortgages outside the United States and $230 million related to
the company’s $18 billion commercial real estate portfolio. Mr. Thain said
he did not expect to recover any money on C.D.O.’s.
By way of comparison, Citigroup wrote down $23.2 billion in
mortgage-related losses and provisions for future bad loans while also
reporting a $9.83 billion fourth-quarter loss. The bank raised $19.1 billion
sovereign wealth funds and domestic investors.
While investors shed Merrill stock on Thursday, Mr. Thain expressed
confidence in the prospects for his firm and the broader economy. He said
that although the economy is likely to slow, it is unlikely to sink into a
recession. He outlined growth initiatives, including expanding the global
wealth management business abroad and expanding all the company’s businesses
in the Pacific Rim, especially in China. He also predicted the firm could
get back to a return on equity — a measure of profitability — of 20 percent.
Not all analysts agreed with that projection. “I’m skeptical,”
said Mr. Hintz of Sanford Bernstein.
“The good thing was John Thain and company said everything I wanted
them to say. He was on top of the situation and taking the right steps,”
said Jeffrey Harte, an analyst at Sandler O’Neill & Partners. “The bad
news is they have a big job in front of them,” he said, adding that the
firm still had sizable exposures to some of the most toxic assets in the
For his part, Mr. Thain appears to enjoy the job. He praised the
company’s culture, and he was quick with an answer as to how that culture
differed from that of Goldman Sachs, where he built his career. “The
biggest single difference is the focus on clients,” he said. “Merrill
does truly put clients first.”