Lehman and Merrill
Even those without a direct interest in Lehman (LEH) or Merrill Lynch (MER) are paying attention this week. The overall market seems to be a hostage to the latest rumor of a potential failure or bailout in the financial sector.
There are clear differences between these companies and the Bear Stearns situation. Most importantly, the Treasury and the Fed have made it clear: No federal guarantees against losses.
This means that potential buyers must accept any risk. Scott Rothbort at The Finance Professor has a nice analysis of the two companies and some timely information from his contacts. He predicts a deal for Lehman this weekend, but only in the $2-3 range.
Merrill is a different story altogether. Read the entire article for Scott's analysis and a list of possible suitors — including a few that will make you smile.
Meanwhile, Citi is out with a sum of the parts valuation on Merrill, similar to what Scott has cited on past occasions. Citi assigns a $9 value to the stake in BlackRock, $16 for the wealth management business, and $15 for the brokerage franchise. They also note that Merrill has $90 billion in liquid assets.
Merrill has already taken the hit on writedowns on several occasions and does not deserve its billing on CNBC's "life support bug" at the top of the screen.
As we have noted in the past, we own Merrill Lynch. We have no position in Lehman.