Eavis joins the Tim
Price/Lily Tomlin school of investment-banking analysis:
It doesn’t look good that O’Neal was allegedly raising the possibility of
a sale at a time when the brokerage was about to report over $8.3 billion
of losses in its fixed income business. It doesn’t make sense to sell out
in the midst of bad news. Unless, of course, more bad news is on the way.
Eavis also points out that the shortlist of potential saviors in terms of banks
who might be interested in buying Merrill is very small. Wachovia just isn’t
set up to run an investment bank, BofA hates investment banking, and Citigroup
has problems of its own. Concludes Eavis:
That effectively leaves JP Morgan Chase in the U.S. and a handful of large
foreign banks. And even these might want to make sure they navigate their
ways through the credit crunch before making a big purchase, like Merrill.
Historically there’s been no shortage of large European commercial banks who
are willing to spend untold billions trying (and usually failing) to get themselves
a strong investment-banking franchise in the US. So maybe someone like Barclays,
having lost out on ABN Amro, might take a stab at buying Merrill. But it’s still
probably more likely that some kind of sovereign wealth fund or Chinese bank
will inject a bunch of capital in return for a minority equity stake.