Market Bets Merrill's (MER) Thain Will Have To Go Back On His Word - Again!

August 14, 2008 10:50 AM EDT

Merrill Lynch (NYSE: MER) CEO John Thain has a trust issue. First, Thain said the company wasn't going to need to sell assets. Well, that changed and the company sold its Bloomberg stake. Then, John Thain said the company was well capitalized and wouldn't have to raise more money. Well that too changed, as the company's latest offering massively diluted shareholders.

Recently, John Thain told CNBC's Maria Bartiromo that the company will keep the dividend, currently yielding 5.6%, because many employees rely on the dividend as a large source of their income. Will Thain have to go back on his word again? Likely.

According to a recent Bloomberg article, the options market is pricing in a significant dividend cut of 50% or more. The article notes Merrill has the highest dividend yield among peers. Specifically, Goldman Sachs (NYSE: GS) pays a 0.9% yield, Morgan Stanley (NYSE: MS) has a 2.7% yield and Lehman (NYSE: LEH) has a 4.4% yield.

Recently, Sanford C. Bernstein & Co. analyst Brad Hintz said Merrill Lynch should reduce its common dividend to 50 cents per share from $1.40, which could free up $1.54 billion in capital.

If the dividend can be maintained, the fat 5.6% payout is a great incentive to buy stock in the struggling investment bank as it tries to resuscitate profits. But, as Thain's previous track record has shown, his word means squat.

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• Goldman Sachs
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