In unforgiven margin call, Bear hedge funds failed on Merrill CDOs, both firms burned

Discussion in 'Wall St. News' started by ASusilovic, Jan 4, 2008.

  1. From From 2005 through the middle of '07, two of Wall Street's oldest firms were locked in an embrace that proved damaging to both. Merrill Lynch, founded in 1914, sold hundreds of millions of dollars worth of collateralized debt obligations to hedge funds run by Bear Stearns, started in 1923.

    Some 90 percent of the face value of the CDOs was loaned to Bear by Merrill, as is normal in such transactions. When the prices of the funds' CDO holdings started to fall in June, Merrill demanded that the firm increase collateral in what's known in the debt markets as a margin call.

    Bear Stearns executives pleaded for time, arguing that the forced sale of their assets would push down all CDO prices. Merrill Lynch officials brushed off the entreaty, according to people involved in the discussions.

    In June, the hedge funds, run by Ralph Cioffi, sold $3.8 billion of CDOs to meet margin calls by Merrill and other lenders that were following its lead. The fire sale led to a further drop in CDO prices.

    Among those that lost value: $23 billion of CDOs Merrill held on its own books. In October, Merrill wrote down the value of all of its mortgage-backed holdings, including CDOs, by $7.9 billion and declared a loss for the third quarter.

    Margin call, margin call...what does it mean again...???:confused: :confused: :confused: :D :D :D
  2. MER and BSC........united they stand.........united they'll fall. Oh no! I'm getting too bearish near the bottom!