Stomachs are surely turning at the wirehouse brokerage firms this morning.
Citigroup has been downgraded to an outright “Sell” by Goldman Sachs analyst William Tanona who is projecting the firm likely faces another $8.9 billion in writedowns. Tanona also downgraded the entire brokerage sector from “attractive” to “neutral” citing few short-term positives. Stocks of the all the major firms are getting hammered (see chart).
In a research note today, Bernstein analyst Brad Hintz says Merrill Lynch will write-down $3.5 billion this quarter. Are asset sales in the cards now? CEO John Thain said in January just as he took the reins of the firm that Merrill wouldn’t take anymore write-downs or need any more capital. He said then that rumored sales of any of its $13 billion stake in BlackRock or its 20 percent stake in Bloomberg were off base.
Meanwhile, over at UBS, while the federal investigation into former private banker Bradley Birkenfield plods on, the State of Massachusetts’ Secretary of the Commonwealth, William Galvin, has sued two of the firm’s units over the sale of auction rate securities (read the complaint here). Galvin accuses UBS Securities and UBS Financial Services of aggressively selling the investments to retail customers at a time when large money managers were losing faith in them and a top UBS executive was scrubbing his own portfolio of the securities. A UBS spokesperson said the firm was disappointed the complaint was filed as UBS and the other firms were working out a solution, but said the firm would defend itself against the specific allegations in the complaint. “We continued to support the auction rate securities market longer than any other firm,” says the spokesperson. “We have offered our clients loans of up to 100% of the par value of their ARS holdings at preferred lending rates. UBS, our clients and clients of other industry participants all share the impact of this unprecedented loss of liquidity in the ARS market.”
Galvin sent subpoenas in early 2008 to UBS, Merrill Lynch and Bank of America to investigate the sales practices of ARS to retail customers.