Merrill's Bad Surprise, Countrywide, & A Sell

I know that I'm not alone on this, but I swear that Merrill Lynch had said just a couple of weeks ago that their write down would be about $4.5 billion. Then when they announced in their earnings report that they wrote down $7.9 billion instead.

What the, huh? Now this is just wild to me. How could they be that far off in their initial guidance? CEO Stan O'Neal said,

"As of the date we preannounced, the amount we were indicating was within the range of evaluations and as we looked at it and went back and examined it in the context of why -- where the markets are, we believe it's appropriate to be at the conservative end of the range," O'Neal said."

Well, that is great. But why not be conservative before now? A write down is just devaluing your own assets. No money has changed hands. Merrill just doesn't think their assets are valued as much as they used to.

This just goes to show that Merrill didn't hedge it's risks nearly as well as the other big investment banks. It also makes me think that the much bally-hooed bank bailout fund might not be as imminent as commonly thought.

If the bailout fund was a go, Merrill would not have written down this much. They would have had another outlet for their "bad" assets. Not good.

Countrywide, the downtrodden and beaten mortgage lender continues it's slide. Today the stock fell another 8%. If closed today under $14. The company reports their earnings (or the lack thereof) on Friday. If the company misses, which I have a sneaky feeling it will, look for the stock to around the $12 mark.

And it is getting to be that time of the year...I might be a little early but it's time to sell off your losers and hangers-on for tax purposes. My eyes are set on Quest Diagnostics (DXG). The company reported less than stellar earnings. It has gone nowhere overall and down over 4.5% today. I am selling the stock at a loss of 2.9% since I added it to my portfolio.

More Cuts at Countrywide & More Bad News

Countrywide's stock price fell below the deal price set when Bank of American injected $2 billion into the company today. It didn't stay below the magic $18 price, closing at $18.48. This comes as news of 900 more lay-offs at the company follow 500 from the previous month.

Not a big shocker here. Countrywide will continue to lay-off staff in the coming months. The company employs some 60,000 people and was actually increasing their staffing up until July of this year. Not too smart for a company that ran smack dab into liquidity problems. And why do I expect more layoffs? The company continues to assert that most of their business will be underwritten to Fannie and Freddie guidelines. For the most part, that is considered A paper. Countrywide is/was the largest sub-prime lender in the country. How can they not cut more staff...well unless they move all the sub-prime origination into the collections and foreclosure departments.

Now, what I find interesting is that I was all about BAC buying CFC at a "discount". I remember mentioning it to my Executive VP at the time and he said. It is a good deal if Countrywide can maintain their stock price, and he continued by saying, "I doubt they can." I didn't believe him at the time. And even with today's events, I still don't believe him. But the doubts are starting to enter my mind.

And to recap all the other outstanding news of the day.

The Fed had to inject over $31 billion into the markets, the most in weeks. Not an encouraging sign.

National City also announced that they were reducing mortgage personnel by 1,300. The regional bank, the 9th largest in the US, sold their sub-prime unit to Merrill Lynch last year.

Lehman Brothers announced another 850 lay-offs following firing 1,200 people just two weeks ago. Nice.

And to top off another bad day in the mortgage market, the Mortgage Bankers Association reported that homes entering foreclosure set a record for the third straight quarter.

It's not getting better. It will get worse. No matter the bailout plan. Pain will be felt all over the markets. Be prepared.