In the ongoing fessing-up process on Wall Street, Bank of America
For example, Merrill Lynch
As I mentioned previously, the market seemed to digest these huge losses in part because it had been preparing itself for them for a while now. And the market didn't seem to doubt that Merrill's changes were on the way -- the company's stock price dropped 19% between the firm's second-quarter earnings release and early August, even though Merrill beat analysts' Q2 earnings estimates.
So how was Merrill itself out of the loop here?
During the Q2 conference call, multiple references were made to the firm's "aggressive risk management" and hedging, yet there was not so much as a hint that massive losses loomed. This leaves two possible conclusions for me to take home: Either there were a bunch of nitwits in there handling the situation, or the company knowingly left us in the dark about what was going on. Neither makes me particularly sanguine about investing in the company.
Perhaps recent firings by Merrill and its CEO Stan O'Neal are meant to be a signal that that there were, in fact, said nitwits hiding out in high-ranking positions. "Not to worry," the folks behind these firings try to assure us, "the offending parties are gone now." Count me as incredulous.
An article in today's Wall Street Journal tells of O'Neal's ongoing work to transform Merrill into a savvier, more agile firm -- potentially one that would stack up better with competitors such as Goldman Sachs
Some may look at Merrill's flub as simply a big, giant growing pain on the firm's path of transformation. Fine, I can live with that. What I can't live with is the market and investors having to guess that the firm will be taking big losses, rather than hearing it from the company itself.
While I single out Merrill here because it's the most glaring example, this isn't to say that other Wall Street firms have handled the recent situation any better. Second-quarter conference calls were littered with incarnations of the phrase "limited exposure," an assurance that many may have mistakenly taken to mean that the firms had limited exposure to troubled instruments. An estimated total $20 billion of losses suggests that "limited" was a severe understatement.
And despite the black eyes that many of these firms are taking right now, as well as assertions from the likes of Deutsche Bank
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Fool contributor Matt Koppenheffer owns shares of Bank of America but of no other companies mentioned here. You can visit Matt on the Fool's CAPS service here, or check out his blog here. The Fool's disclosure policy didn't have to take any losses from the subprime meltdown.