I cannot get enough of Merrill Lynch at the moment. What's happening at the New York HQ of the "thundering herd" is a gripping illustration of the problems faced by US-style financial conglomerates in the harsh realities of the credit-crisis world.
On the one hand, Merrill executives are being told to cut down on the private jet trips to which many have become addicted, presumably to minimise the need for much more serious cuts in personnel and expenses further down the line. And quite right too – in the modern age and economic climate, scheduled flights or teleconferencing would appear sufficient to carry on the needs even of a "relationship" industry like investment banking.
But on the other hand, Merrill has changed its mind about selling its 49 per cent holding in US asset manager BlackRock, which has a value of around $10 billion. Merrill chief John Than had detailed talks with his opposite number at BlackRock, Larry Fink, but could not agree on a price. Maybe that's not so surprising, given the fact that Merrill would have taken a big tax hit on the disposal. But the failure to clinch a deal could come back to haunt Thain.
Fink had apparently lined up investors from Kuwait and Singapore – the SWFs KIA and Temasek – to take part in the deal, but Thain's decision to halt the sale has left them in the cold, and still nursing big losses on the investment's they made in Merrill last year when the financial crisis was hitting hard.
I think the Kuwaitis and Singaporeans will be pretty angry over that outcome. They have been denied the chance to widen their investment in the US financial system, but told to sit tight on their under-water Merrill stock. That is not the way to say "thank you" to supportive shareholders who came to Merrill's rescue in its hour of need. They will now be even keener to get a chunk of BlackRock, even if the terms move even less in Merrill's favour.