Merrill Lynch Related Stories
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A double feature special treat - an article about Merrill Lynch troubles and an article about the grandfather of CDO's
Merrill Lynch Reports Loss on $8.4 Billion Writedown (Update7)
Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history after taking $8.4 billion of writedowns, almost double the firm's forecast three weeks ago.
The writedowns on subprime mortgages, asset-backed bonds and leveraged loans led to a third-quarter loss of $2.24 billion, or $2.82 a share, six times more than Merrill estimated on Oct. 5. Chief Executive Officer Stanley O'Neal said today that the New York-based firm may sell assets to shore up its balance sheet. .....
.......Merrill said its holdings of so-called collateralized debt obligations, or CDOs, along with other securities and loans linked to subprime mortgages, lost $7.9 billion of their value in the quarter. CDOs are bonds created from pools of debt securities and loans.
The size of the writedown increased from $5 billion after Merrill conducted ``additional analysis'' since the firm's Oct. 5 announcement, O'Neal said on the conference call.....
Interesting article includes some history of CDO's
Pioneer Helped Merrill Move Into CDOs
Merrill Lynch & Co. is reeling after a giant write-down in mortgage-related securities. But the job-hopping executive who made the firm a leader in this once-hot, now-troubled arena has moved on.
From 2003 to early 2006, Christopher Ricciardi helped transform Merrill from bit player to powerhouse in the lucrative business of bundling loans into salable securities. But the value of many of the securities, known as collateralized debt obligations, or CDOs, has tanked this summer and fall amid rising mortgage delinquencies.
Mr. Ricciardi liked to be called the grandfather of CDOs. Long before joining Merrill, he helped push Wall Street into risky new areas such as subprime mortgages, those made to home buyers with weak credit. Then he helped turn Merrill into the Wal-Mart of the CDO industry, before leaving behind a roughly $8 million annual paycheck to jump to a small firm that was a Merrill client.....
.....Everybody was talking about the wonders of all the CDOs and the new innovations," says Stacey Nutt, the president of ClariVest Asset Management LLC in San Diego. They're discovering that these instruments have instead spread risk to parts of the financial system, such as hedge funds and foreign investors, that aren't regulated. "You end up with more risk than you had 15 years ago," Mr. Nutt says. "It's a very scary situation."
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A double feature special treat - an article about Merrill Lynch troubles and an article about the grandfather of CDO's
Merrill Lynch Reports Loss on $8.4 Billion Writedown (Update7)
Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history after taking $8.4 billion of writedowns, almost double the firm's forecast three weeks ago.
The writedowns on subprime mortgages, asset-backed bonds and leveraged loans led to a third-quarter loss of $2.24 billion, or $2.82 a share, six times more than Merrill estimated on Oct. 5. Chief Executive Officer Stanley O'Neal said today that the New York-based firm may sell assets to shore up its balance sheet. .....
.......Merrill said its holdings of so-called collateralized debt obligations, or CDOs, along with other securities and loans linked to subprime mortgages, lost $7.9 billion of their value in the quarter. CDOs are bonds created from pools of debt securities and loans.
The size of the writedown increased from $5 billion after Merrill conducted ``additional analysis'' since the firm's Oct. 5 announcement, O'Neal said on the conference call.....
Interesting article includes some history of CDO's
Pioneer Helped Merrill Move Into CDOs
Merrill Lynch & Co. is reeling after a giant write-down in mortgage-related securities. But the job-hopping executive who made the firm a leader in this once-hot, now-troubled arena has moved on.
From 2003 to early 2006, Christopher Ricciardi helped transform Merrill from bit player to powerhouse in the lucrative business of bundling loans into salable securities. But the value of many of the securities, known as collateralized debt obligations, or CDOs, has tanked this summer and fall amid rising mortgage delinquencies.
Mr. Ricciardi liked to be called the grandfather of CDOs. Long before joining Merrill, he helped push Wall Street into risky new areas such as subprime mortgages, those made to home buyers with weak credit. Then he helped turn Merrill into the Wal-Mart of the CDO industry, before leaving behind a roughly $8 million annual paycheck to jump to a small firm that was a Merrill client.....
.....Everybody was talking about the wonders of all the CDOs and the new innovations," says Stacey Nutt, the president of ClariVest Asset Management LLC in San Diego. They're discovering that these instruments have instead spread risk to parts of the financial system, such as hedge funds and foreign investors, that aren't regulated. "You end up with more risk than you had 15 years ago," Mr. Nutt says. "It's a very scary situation."
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Merrill Lynch CEO reportedly to step down
Numerous reports since Friday, citing various sources close the beleaguered chief executive, have said that he has decided to leave the brokerage giant Merrill Lynch & Co., Inc and is negotiating the terms of his departure. An official announcement of the 56-year-old O'Neal's departure could come later Monday, according to the reports.
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New York-based Merrill in recent weeks has faced mounting criticism after it misjudged the severity of the subprime-mortgage crisis. The firm reported a third-quarter loss of $2.24 billion, reflecting an $8.4 billion write-down related to subprime mortgages.......
Merrill Said to Face More Writedowns
Merrill Lynch & Co. could write down another $4 billion in value of complex financial instruments during the upcoming quarter if a new management team is installed, Deutsche Bank analyst Mike Mayo wrote in a research note Sunday night.
Merrill Lynch is already reeling after writing down $7.9 billion in value of collateralized debt obligations and subprime mortgage-backed securities......
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Well, the markets seem to believe that a new CEO is going to make all the difference at Merrill. The stock has had a major recovery from it's lows last week. It's all clear sailing ahead now...
It's a well known fact that if things are heading south in an organization, making any change to the head of that organization will always fix the problem. Chalk another one up to rational market behavior.
I don't think the AAA tranches were ever supposed to take a dive like this.
Markit ABX-HE-AAA 07-2
Info about ABX Indices
ABX.HE indexes track credit default swaps (CDS) on subprime mortgage-backed securities. CDS are derivatives that provide insurance against default. Mortgage-backed securities are home loans that have been packaged up together and sold as a single security.
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Hedge funds and big investors use the derivatives market to bet against securities that are backed by subprime mortgages. This activity is measured by the ABX home equity index, in which the cost of credit insurance gives an implied price for the underlying bonds. As measured by the ABX index, the implied price for bonds backed by subprime mortgages has fallen dramatically in recent weeks.
Is Merrill the tip of the iceberg?
......While some investors have clearly been getting carried away, the crisis in credit markets is far from over—and may be about to get worse. One depressing indication of this was a vast, $8.4 billion writedown this week by Merrill Lynch, an investment bank.
The most striking (and overlooked) aspect of this was that it involved mostly securities that only a few months ago had been considered platinum-plated: collateralised-debt obligations (CDOs), or tranched pools of mortgage-backed securities, that were not only rated triple-A, the highest level, but had also received extra credit enhancement, making them "super senior". Until recently it was assumed that such well-protected paper could not lose its value. No longer. Worryingly, hundreds of banks, insurers and hedge funds around the world hold such securities. Fooled by false alchemy, they face a terrible reckoning.......
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Oh man, oh man. My old plan of pretending nothing could go wrong seems to have gone wrong. OK, new plan. Let's assume that all CDOs will lose value. In reverse economics (akin to reverse psychology), will that fix all our problems?
Huh!?!? Even with reverse economics all CDOs are losing value? You can't make this stuff up. But if you could, maybe I could sell the script to Michael Bay!