Merrill Lynch & Co chief executive officer John Thain, battered by US$19 billion in losses, vowed last week to maintain the firm’s US$0.35 quarterly dividend. The options market doesn’t believe him.
“The market is pricing in a significant cut, roughly 50 percent or more,” said Steve Sosnick, who trades options at Interactive Brokers Group Inc, which handles a seventh of global equity options trading.
A reduction would be Merrill’s first since it went public in 1971 and represent another reversal for Thain, 53, who told analysts he had plenty of capital two weeks before last month’s record US$9.8 billion stock offering. The sale lifted the burden of quarterly payouts by boosting shares outstanding by half.
The company has paid US$0.35 a share since the first quarter of last year, when Merrill’s board raised it from US$0.25. The board reaffirmed the payment on July 30. Yet a reduction to US$0.18 for the fourth quarter is reflected in the market, Bloomberg data show. The data compare prices for different Merrill options and apply formulas commonly used by traders to reflect the probability and timing of dividend payments.
Merrill, the third-biggest US securities firm by market value, has the highest dividend yield among peers, at 5.5 percent. The yield moves inversely to the stock price, which has tumbled 52 percent this year to US$25.60.
Goldman Sachs Group Inc, the biggest US securities firm, pays a 0.9 percent dividend yield, while No. 2 Morgan Stanley pays 2.7 percent and No. 4 Lehman pays 4.4 percent.
Sanford Bernstein & Co analyst Brad Hintz estimated in an Aug. 6 report that Merrill should cut its dividend by 64 percent to about US$0.13, to free up US$1.5 billion of capital a year. Fox-Pitt Kelton analyst David Trone said in a report on Tuesday that Merrill may face more than US$5 billion of writedowns in the second half of this year and may need the extra capital as a buffer.
Thain said in an Aug. 4 interview that he didn’t plan to cut the dividend, in part because many Merrill employees own the stock. His board doesn’t need to declare a change in the fourth-quarter dividend until October.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft