October 17, 2008 – 8:49 am


2008-12-31 2008 – Imploded:

Merrill Lynch has not been bailed out, bought up or kept around for any other reason than to pay Thain’s bouns. The bank exists in name only so, going into 2009 we will drop the pretense and imploed it.

2008-10-18 Q3 – Final Report:

Merrill Lynch reported Q3 results and they were the same for the fourth straight time. Another loss! This time the loss comes on a whopping $9.5 billion in write-downs.

the total comes to:

  1. Tally for Write-Downs/Charge-Offs: $47.25B + $9.5B = $56.75B
  2. Tally for cash raised : $34.4B + $14.225B = $48.625B
  3. TARP: $10.0B
  4. Current level of Level III assets at $*B
  5. Current level of loan loss reserves at $*

Misery Index > $115.375B

2008-09-15 Curtains:

Merrill Lynch no longer exists as an independent entity. It lost that status over the weekend when it was bought out by Bank of America. But even as it was dying, the company could not resist pulling off one last scam. <>

2008-08-25 Robin Hooded:

Merrill Lynch has been forced to cough up cash to repurchase some of its own junk, specifically the auction rate securities. They have agreed to a $125 million fine and to repurchase $10 billion to $12B from State of Massachusetts investors and separately $7B via the SEC. The agreements with New York, Massachusetts and the SEC are each seperate, but some of the investors covered by the SEC are also covered by New York or Massachusetts or both so the most Merrill will repurchase under all three agreements is $12B.

2008-07-29 It’s Still Not Over:

In order to beat the street, Merrill Lynch soft balled its second quarter write-downs. Now they have to cough up the remainder before third quarter reporting.

2008-07-17 It’s Still Not Over:

It’s not over til it’s over, but it’s just not ending for Merrill Lynch. Level 3 is rising, and the write-downs keep cascading in on top of the $37.5B already written-downs. The company apparently does not report its loan loss provisions or has another name for it, so for now we estimate that the Misery Index has gone up $18B since last summer. Combined with the new write-down tally, the total comes to:

  1. Tally for Write-Downs/Charge-Offs: $37.5B + $9.75B = $47.25B
  2. Tally for cash raised: $34.4B
  3. Current level of Level III assets at $69.86B
  4. Current level of loan loss reserves at $*

Misery Index > $83.5B

2008-07-11 Level 3:

Merrill Lynch has almost no shareholder equity. It has been almost entirely contaminated by toxic Level 3 trash:

Merrill has $61.7 bn cash and equivalents on its balance sheet, it has $36.5 bn in shareholder equity, but it has $34.4 bn in illiquid level 3 trades, both assets and liabilities that it can’t get a pricetag on because no one wants these items. It’s got $9 bn in toxic subprime collateralized debt obligations, those cut and paste jobs few can make any sense of, with another $4.6 bn in asset-backed securities propped up by corporate bonds and loans. It’s got $44 bn in exposures to residential mortgages as well.

This helps us put Merrill’s level 3 balance into some perspective. Shareholder equity = $36.5B, but only $2.1B is real. In other words if they wanted to sell it all tomorrow only $2.1B would even have a market. In the real non-SFAS No. 157-world, shareholder equity is only a fraction of what it’s reported to be.

2008-07-02 Cut Down Again:

Merrill Lynch is cut down again by Meredith Whitney of Oppenheimer and UBS analyst Glenn Schorr.

2008-06-27 Cut Down Again:

Merrill Lynch has been quite busy this week. After receiving downgrades and retreating from Australia, it happened to come up that the bank still believes the direct pipeline to politicians’ pockets is the superior business model. The upshot is that the write-downs for the sacond quarter could go as high as $5.4B.

2008-06-02 Cut Down:

Merrill Lynch, the third-biggest U.S. securities firm by market value, was cut to A from A+ by S&P today in a move that may foretell of more serious write-downs and credit-related losses to come.

2008-05-22 Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. But here comes a write-down count of a different sort, how much in write-downs and credit losses firms have written off per wholesale banking employee.

Merrill Lynch – $31.7B, 48,100 employees, $659,044 per employee

2008-05-21 – Leaving London:

It is probability the best thing the bank could do, maybe the only thing, but now there is one less subprime lender in the UK. In fact, all the banks including Merrill Lynch have severely limited credit flow to all borrowers. This is how a contagion spreads

2008-05-19 – Off Balance:

Banks are not writing down their write-downs and getting away with it. Instead, they are writing them down in the balance sheet, and there is a distinction.

Merrill Lynch was hiding $5.3 billion on the balance sheet, but we will balance things out for them by adding $5.3 billion to their existing $32.2 total bringing them up to $37.5 billion.

2008-05-14 – Sisyphus and Leveraged Loans:

In the hey-day of the credit bubble and the carry trade Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers took in mountains of money making loans for leveraged buy outs. Banks make money by lending money so fewer loans usually looks like less profits. But in the topsy-turvy aftermath of the credit bubble, when all loans are suspect and leverage loans among the most toxic, banks are trying to rein in their balance sheets.

That’s why the cancellation of Cumulus Media’s $1.3 billion buyout looks like good news for Merrill Lynch’s heavy loan book. Already Merrill has reduced its corporate loan book by 20%.

Merrill Lynch still has $14 billion exposure to high-risk loans.

2008-05-08 – Sleight of Hand:

Minyanville reports that Merrill’s level three assets have ballooned to 225% of shareholder equity. Problem solved, or sword of Damocles?

2008-05-06The New Default Swap:

Merrill Lynch is swapping the mortgage-backed assets in danger of default into its level 3 accounting column. The increase in level 3 liabilities from Q4 of 2007 to Q1 of 2008 amounted to $17.7 billion, an increase of nearly 70 percent.

2008-04-17 – Caught:

Merrill Lynch and CEO John Thain sought to get out in front by playing fast and loose with reckless disregard for other people’s money and today those other people saw that risk catch up:

Merrill Lynch & Co. posted its third straight quarterly loss and said it will cut about 3,000 more jobs after the credit seizure forced the investment bank to write down at least $6.5 billion of debt.

For the fiscal first quarter 2008, Merrill wrote down $6.6 billion to CDOs and another $3.1 billion to the plummeting value of mortgage-related securities on hold at its U.S. banks, giving a total of $9.7 billion written down so far this year.

In the bigger picture, the company has written down $18 billion on CDOs alone in the past nine months, and has also
written off about $29 billion worth of risky asset-backed securities and leveraged loans.

The reality for Merrill Lynch is as it was for Bear Stearns–STARK. John Thain was hired as chief executive four months ago, but not to save the company. For a major bank that rose to the top on Ponzi finance and now knows no other finance system, the end of days of Ponzi finance bring no salvation. No, it is more likely that Thain’s purpose is “to hit one out of the park.” That best explains the psychotic frenzy of risky double-down dealing that Thain has engaged his company in since his arrival. It is a low-probability desperate attempt to squeeze a few cents out of each share for the cadre of elite insiders, ala Bear Stearns, but it is no rescue, you can be sure of that. In fact you may as well chalk Merrill up as ailing, or better yet get a new category –Dead Man Walkin’.

2008-04-16 – Caution to the Wind:

Merrill Lynch is due on Thursday to report first quarter earnings along with mortgage securities write-offs of another $6 billion to $8 billion. Perhaps it would be more appropriate to have Merrill, Thain and company explain themselves, but don’t count on it.


Don’t look now, but Bloomberg reports in a long article on credit lines that Merrill has about $59.3 billion of undrawn credit line commitments (or at least, did at year-end 2007. For comparison, however, Citigroup had $471B and JP Morgan had $251B). This is much worse a fact than it would seem in isolation, since now more than at any other time in living memory, corporate borrowers need to draw down those credit lines (which is the main point of the article).

Money center banks collectively have $1.4 trillion of untapped credit commitments. We don’t think they have $1.4 trillion of capital, however.


We can add it now or add it later, but we will add it because (from Mish):

Let’s face the facts. When you file a $3.1 billion lawsuit against someone who is insolvent, you can all but kiss $3.1 billion goodbye.

Merrill Lynch is not going to collect a dime from this lawsuit for the simple reason the guarantee of XL Capital Assurance Inc. is likely worthless.

Say so long to another $3.1 billion.


Merrill Lynch has been pegged by Oppenheimer analyst Meredith Whitney for an estimated $19B more in write-downs due to leveraged loans. There is probably more to come.


Merrill (along with UBS) is in trouble with a veritable hornets nest of suddenly-angry regulators:

The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage securities, recently upgraded probes of UBS and Merrill Lynch & Co. into formal investigations, people familiar with the matter say.

The investigations could raise the stakes for Wall Street in the multiple probes examining whether financial firms deliberately misvalued, or “mismarked,” massive holdings of mortgage securities. Most of the current investigations into mortgage matters involve civil authorities; the U.S. attorney launches criminal investigations and has a history of prosecuting Wall Street-related matters.

Other regulators led by the SEC are examining whether financial firms should have told investors earlier about the declining value of such securities and how they priced them on their books, people close to the matter say.

In its investigations, the SEC also is delving into whether Wall Street firms placed higher values on securities they own than those they placed in customer holdings, the people say. The SEC previously has said it has opened roughly three dozen investigations tied to the downturn of the subprime market, which primarily is tied to borrowers with poor credit histories.

We hope you kept your noses clean, boyz.

Initial Writeup, Feb. 3, 2008:

Merrill Lynch has been one of the hardest-hit banks by the credit crunch and subprime debacle. As per their Q-4 2007 report, the bank wrote down about $7.9B in the third quarter and a whopping $11.5B in the fourth quarter — an amount “bested” only by UBS. There was also $310M written down due to the collapse of bond insurer ACA Capital. This brings the total loss in these areas for 2007 (as reported so far) to almost $20B.

The bank reports a continuing $4.8B exposure to subprime CDOs, over $43B of held subprime RMBS, $1.6B of direct subprime loans, $13.8B in subprime-linked CDS, and $1.6B of exposure to ACA remaining. Suffice it to say, we expect more write-downs to come out of these exposures.

Also worth noting is a general $23B of derivatives exposure to counterparties with “AA”-or-lower ratings. That represents 70% of Merrill’s tangible equity. This could turn out to be a huge source of future earnings risk for the bank.

By way of review, Merrill was one of the top pushers of subprime product in the frenzy of the past few years, even purchasing major nationwide subprime lender First Franklin in late 2006 in an attempt to have more of the bonanza of profits for itself. That purchase turns out to have been ill-fated, as the company’s post on the Mortgage Lender Implode-o-Meter thoroughly illustrates. Volume is now essentially non-existant.

Merrill jettisoned its CEO Stan O’Neal to pay for the company’s subprime sins (this apparently had nothing to do with “punishing” O’Neal — who received a $160M golden parachute on his way out). However, all indications are that there will be much more purgatory to pay. For example, as Mish reports, Merrill is having to take back some of the junk they dealt, especially that which was sold to public entities. Mish argues (and we agree) that this action may start a trend, not just at Merrill but any other banks that put out similar product, and especially as municipalities find themselves effectively broke.

And that means there’s a lot more “off-balance-sheet exposure” lurking.

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