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As Goldman Bagged Clients, Merrill Bagged Itself

Posted By Invictus On March 2, 2010 @ 1:00 pm In Bailouts,M&A | Comments Disabled

As a stark counterpoint to How Goldman Sachs Bagged Clients [1], I recall ever so fondly how Merrill Lynch bagged itself:  With a Sept. 2006, top-of-the-market, $1.3 billion acquisition [2] of sub-prime originator First Franklin from National City:

First Franklin is one of the nation’s leading originators of non-prime residential mortgage loans through a wholesale network.  [...]

“This transaction accelerates our vertical integration in mortgages, complementing the three other acquisitions we have made in this area and enhancing our ability to drive growth and returns. We look forward to working with the experienced teams at these companies to serve their clients and leverage our broad range of mortgage products and services.” — Dow Kim, president of Merrill Lynch’s Global Markets & Investment Banking Group

A close friend who was in the employ of seller National City told me at the time that they couldn’t believe their good fortune at having found a buyer for their turd factory.  (National City itself was eventually picked up on the cheap [3] by PNC.)

The operation was being wound down [4] about one year later, representing what might be one of the all-time boneheaded acquisitions in corporate history.

The saddest part of all is that Merrill had a chief economist — David Rosenberg — who was screaming about an inflating housing market bubble [5] [PDF].  Had they listened to their own economist — not an unreasonable thing to do — Merrill could have come out smelling like a rose.  Instead, they chose to ignore Rosie and plough headlong into what would have undoubtedly been bankruptcy if not for B of A.

Good times!


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2010/03/as-goldman-bagged-clients-merrill-bagged-itself/

URLs in this post:

[1] How Goldman Sachs Bagged Clients: http://www.ritholtz.com/blog/2010/03/goldman-sachs-bagged/

[2] $1.3 billion acquisition: http://www.ml.com/index.asp?id=7695_7696_8149_63464_70786_70780

[3] picked up on the cheap: http://www.usatoday.com/money/economy/2008-11-01-4054125678_x.htm

[4] was being wound down: http://www.thestar.com/Business/article/257444

[5] housing market bubble: http://www.blah3.com/The%20Market%20Economist%20080604.pdf

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