Merrill Lynch

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Frontrunning: January 24





  • Fears Mount That Portugal Will Need a Second Bailout (WSJ)
  • EU to Have No Deadline for End of Greek Talks (Bloomberg)
  • Japan economy predicted to shrink in 2011 (AFP)
  • Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
  • Berlin ready to see stronger ‘firewall’ (FT)
  • Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
  • EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
  • China's Oil Imports from Iran Jump (WSJ)
  • Croatians vote Yes to join EU (FT)
  • Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
  • Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)
 
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The CDS Market And Anti-Trust Considerations





The CDS index market remains one of the most liquid sources of hedges and positioning available (despite occasional waxing and waning in volumes) and is often used by us as indications of relative flows and sophisticated investor risk appetite. However, as Kamakura Corporation has so diligently quantified, the broad CDS market (specifically including single-names) remains massively concentrated. This concentration, evidenced by the Honolulu-based credit guru's findings that three institutions: JPMorgan Chase, Bank of America, and Citibank National Association, have market shares in excess of 19% each has shown little to no reduction (i.e. the market remains as closed as ever) and they warn that this dramatically increases the probability of collusion and monopoly pricing power. We have long argued that the CDS market is valuable (and outright bans are non-sensical and will end badly) as it offers a more liquid (than bonds) market to express a view or more simply hedge efficiently. However, we do feel strongly that CDS (indices especially) should be exchange traded (more straightforward than ever given standardization, electronic trading increases, and clearing) and perhaps Kamakura's work here will be enough to force regulators and the DoJ to finally turn over the rock (as they did in Libor and Muni markets) and do what should have been done in late 2008 when the banks had little to no chips to bargain with on keeping their high margin CDS trading desks in house (though the exchanges would also obviously have to step up to the plate unlike in 2008).

 
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Fed Back To Its Secretive Ways, Sells $7 Billion In Maiden Lane Assets Directly To Credit Suisse Without Public Auction





Instead of opting for a publicly transparent BWIC in the disposition of its Maiden Lane II assets, the Fed has once again gone opaque - long a critique of the Fed's practices which have required repeated FOIAs in the past to get some clarity on its secret bailouts and transactions - and proceeded with a private sale, without any clarity on the deal terms, in which it sold $7 billion in face amount of Maiden Lane II assets direct to Credit Suisse. The alternative of course would be the same snarling of the MBS and broadly fixed income market that we saw in June of last year. In other words, the Fed looked at the options: transparency and risk of grinding credit demand to a halt, or doing what it does best, which is to transact in the shadows, and avoid capital markets risk. It opted for the latter. As to why the Fed decided to go ahead with a deal shrouded in secrecy? "The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public." "I am pleased with the strength of the bids and the level of market interest in these assets," said William C. Dudley, President of the New York Fed. Because if there is one thing Bill Dudley and the Fed knows is gauging what is in the best interest of the public... and the callorie content of the iPad of course.

 
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Merrill Lynch Note To Clients: "Buy The Dip"





This has to be some sick joke...

 
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Merrill Lynch Denies It Has Raised Prime Brokerage Margins





Earlier we disclosed market rumors that BofA/ML has raised PB margins. Bank of America has hit our tip box providing the following denial that PB margins have increased. We are happy that BofA/ML has seen it as sufficiently important to its business to refute rumors posted on a blog.

In response to earlier chatter this morning, please post the company statement below.  Please confirm receipt and call with any questions.
Thanks.

“Bank of America Merrill Lynch has not raised its prime brokerage margins in any product including equity, credit, rates, FX, etc.”

 
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New Merrill Lynch Disclosure Shines A Perjurious Light On Ben Bernanke's Sworn Testimony; JP "Fed Lite" Morgan Also Dabbled In Repo 105-type Scams





It seems it was just yesterday that Bernanke was on the edge of committing perjury and lying that the Federal Reserve of New York knew nothing about Lehman's "more peculiar" off balance sheet transactions. Oh wait, it was: as a reminder in his cross by Scott Garrett, the New Jersey representative asked whether the "Fed was aware of the Repo 105 and the accounting irregularities going on?"
Bernanke answers "No - they were hidden." Oops. Because a story just released by the Financial Times seems to indicate otherwise, and unless Merrill Lynch is lying out of their derriere, Mr. Bernanke should be immediately investigated for potential perjury before the American people. "Securities and Exchange Commission and Federal Reserve officials were warned by [Merrill Lynch] that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008...In the account given by the Merrill officials, the SEC, the lead
regulator, and the New York Federal Reserve were given warnings about
Lehman’s balance sheet calculations as far back as March 2008
."  Amusingly, the sole purpose why Merrill would rat out Lehman is to make its own disastrous situation more agreeable, as often happens when the rats realize the sinking of the ship is inevitable. Well, unlike Merrill, whose liquidity situation was equally as disastrous on the weekend of September 14th, which found a pressed suitor in the form of BofA (and its Fed/Goldman-puppet CEO Ken Lewis), Lehman was not quite so lucky (one wonders why). Yet the bigger issue is why does the Fed keep on lying to the American public without any trace of consequence? When will someone finally wake up and sue the Federal Reserve (and we don't mean FOIA), or at least slap a racketeering lawsuit on "those people?" Oh yeah, the market is up, American Idol is on TV, G-Pap has done all that was needed to (not) be bailed out, so all shall be well. This is better known as "if the other Ponzi dude was thrown in jail, you must acquit" defense.

 
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Dear Senator Corker: Meet The HVol 4 And Basis (Prop) Trades That Destroyed Merrill Lynch





In the past Zero Hedge had respect for Ten. Senator Bob Corker due to his opposition to the nationalization of the bankrupt automakers and making them yet another ward of the ever larger central-planning state. However, after today's hearing with Paul Volcker on the Prop trading ban, any respect we may have had for the Senator has promptly dissipated. While we understand that the pointless bashing of Volcker's proposal by Corker was predicated by his sizable lobby interest (over $21 million raised in the course of his career) and his talking points were undoubtedly a transliteration of a memorandum submitted by one of the Too Big To Fail banks that stand to experience substantial losses should the Volcker proposal pass, one line of argument in Corker's speech that is flagrantly flawed was Corker's naive rhetorical question whether there has been a single instance during the financial crisis where a commercial bank engaging in proprietary trading led directly to that institution failing or having to be bailed out by the taxpayer. Corker assumed the answer is no and kept pouncing on that answer. Well, Senator, you are wrong - meet Merrill Lynch, incidentally one of your biggest financial backers. Also, please meet Merrill's prop basis trade and its prop HVOL4 trade, which combined were the primary reason for the firm's $15 billion writedown in Q4 of 2008 and the subsequent bail out of the firm by Bank of America.

 
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Goldman's Complete Presentation And Transcript From The Merrill Lynch Financial Services Conference





"As I’ve said before, the significance of the government’s actions last fall cannot be overstated, and we are grateful. We believe those efforts were critical to protecting the financial system and ensuring the continued viability of the American economy." - Lloyd Blankfein, Goldman Sachs

Thank you government indeed, because without you the "continued viability" of Goldman employees' bank accounts, who from 2000 to 2008, had an average compensation of $196,004, 145% more than the $79,962 peer average, may have well been in jeopardy. As it stands, 2009 will be the greatest pay year on record for Goldmanites, at an average $770,000 all in comp each

 
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Bank Of America Merrill Lynch Gets Paid To Pay Itself Back In Developers Diversified





REIT stocks benefited mightily from Merrill Lynch's generosity earlier in the year, when the ML REIT team issued follow on equity offerings, followed by prompt upgrades to the stock, although not necessarily in that order. The bottom line - roughly 5% in underwriter fees on almost $20 billion worth of new equity issued. And while last week's REIT massively downsized IPOs were an indication that the top for REIT stocks has come, that has not prevented Ken Lewis' firm from continuing to profit handsomely from the next shoe to drop in real estate.

 
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Merrill Lynch RateLab: "Long Live The King (Bernanke)"





"We at the RateLab have long been fans of Ben Bernanke, as such, we are cheered that politics did not trump competence and Bernanke was officially nominated for another four year term as Chairman of the FED. What follows is a linear thought process of what this means for the markets." - Harley Bassman

 
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Merrill Lynch In Full REIT Upgrade Mode - The Sequel





Been a while since we heard from the most popular (and profitable) research (and trading) desk on Wall Street. Last night Merrill analyst Craig Schmidt went to town upgrading pretty much anything he could get his hands on. To wit, all from the last 24 hours:

 
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Some Totally Unexpected REIT Lack Of Love From Merrill Lynch





Hey Regency, this is what happens when you don't tap ML as lead underwriter: you get the expected headline "Improving Balance Sheet" but no accompanying Upgrade or target price increase (in a note just released by Merrill Lynch/Bank of America which was somehow not a lead underwriter on this particular offering).

 
Tyler Durden's picture

Some Totally Unexpected REIT Lack Of Love From Merrill Lynch





Hey Regency, this is what happens when you don't tap ML as lead underwriter: you get the expected headline "Improving Balance Sheet" but no accompanying Upgrade or target price increase (in a note just released by Merrill Lynch/Bank of America which was somehow not a lead underwriter on this particular offering).

 
Tyler Durden's picture

Some Totally Unexpected REIT Lack Of Love From Merrill Lynch





Hey Regency, this is what happens when you don't tap ML as lead underwriter: you get the expected headline "Improving Balance Sheet" but no accompanying Upgrade or target price increase (in a note just released by Merrill Lynch/Bank of America which was somehow not a lead underwriter on this particular offering).

 
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