After Merrill Lynch’s record loss of $7.8 billion last year, CEO John Thain has toiled to tame its risk management, sell heaps of equity to boost capital and contain any spreading malaise. But, in the run-up to the bank’s first quarter report this week, the bond market is thoroughly unconvinced – and its latest assessment is in.

While shareholders await first- quarter results from Merrill Lynch & Co. later this week, the bond market already has given new Chief Executive Officer John Thain a report card. And there isn't much to get excited about.

Since he joined the world's third-largest securities firm Dec. 1, the relative value of Merrill's debt has deteriorated, showing a loss of confidence that Thain can make things better anytime soon. Prices for Merrill credit-default swaps, used to insure its bonds, climbed to 210 basis points from 131, indicating risk has increased. That price is almost as high as for Lehman Brothers Holdings Inc., which last month had to deny rumors that it faced a funding shortage.

Thain, hired to rebuild New York-based Merrill after a record 2007 loss of $7.8 billion, spent his first four months overhauling risk-management practices and selling more than $12 billion of equity to bolster capital. That hasn't satisfied investors, who are focused on the risk of asset writedowns beyond the more than $20 billion already announced, a drop in investment-banking fees to the lowest level since 2003, and the departures of a dozen senior executives and traders. The company's shares have fallen 27 percent since Nov. 30.

``We're either in a recession or heading into it, and that certainly is a more difficult operating environment for any executive, let alone one coming in and dealing with a very large institution that has been in the middle of all sorts of challenges,'' said Scott MacDonald, head of research at Aladdin Capital Management LLC in Stamford, Connecticut, which manages about $20 billion in fixed-income assets.

Continue reading on Bloomberg.com

Next article » A $6 Billion Deal Is A Happy Thing

Previous article « Clear Channel Suitors Just Say No