Merrill: How to do a Conference Call Right

I wasn't on the Merrill call this morning, but David Gaffen was, and it seems from his live-blog - and the Merrill share price - that John Thain just gave the market a masterclass in spinning negative announcements.

Rember that Merrill lost $12 per share in a single quarter - this is for a stock trading in the mid-$50s. The number was significantly larger than official analyst expectations of less than $5 a share, and the mood was grim going into the call. But just look at how Thain played it:

As is S.O.P. for such things, he explained that Merrill Lynch is very profitable in terms of its business lines. That's hugely important to investors, who like to be forward-looking rather than backwards-looking.
He emphasized that Merrill has no liquidity problems.
He said that there would be no more dilution of shareholders beyond the capital infusion announced a couple of days ago.
He talked about the "Goldmanization" of the management structure, although he didn't use that word - essentially saying that he would stop the bank from being at the mercy of individual silos.
Interestingly, he's scaling back trading operations, too - not very Goldmanesque, perhaps, but it is reassuring, especially given that, well, Merrill's traders aren't Goldman's traders.
He was upbeat, using words like "very optimistic as we look out to 2008," which sets him apart from most other banking CEOs.
He made it clear that he was drawing a line under these write-downs and that there wouldn't be yet another shoe to drop. One way of doing that is by putting on $23 billion of short positions against the CDOs exposures that Merrill retains.
At the same time, he was clear that the loss was no accounting gimmick, that it was real, and that he does not expect the write-downs to become write-ups in future. Which is understandable, if he has $23 billion of short positions.
He gave the impression that he had hit the ground running, in stark contrast to the notorious Al Lord call where the new CEO hadn't got a real handle on his financial institution yet. He didn't ask Merrill's shareholders to be patient as he settled in and developed a strategic plan, or anything like that.
He dared the markets not to take him at his word, not only in terms of future write-downs in the CDO portfolio, but more generally in terms of unexpected black swans. They simply won't happen, he said.
He came right out and said the stock was cheap at present levels.

The result of all this? A decidedly modest drop in the share price. Yes, it's down about 2.5% from where it closed on Wednesday, but it's up from where it closed on Tuesday, when the capital infusions were announced. And at $53.70, it's already up more than 10% from its 2008 lows. Well done, that man!

Update: John Carney compares Thain's performance, favorably, to that of Vikram Pandit at Citigroup.

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