Merrill in dubious $15bln accounting measure to avoid subprime losses?

Discussion in 'Wall St. News' started by ASusilovic, Sep 6, 2007.

  1. From

    The August 3 edition of Asset Back Alert ( (a weekly report that goes out to major finances houses and investors willing to pay nearly $2,500 for an annual subscription) carries an article titled “Merrill Ducks Asset Markdowns, But How?” The article raises serious questions about the dubious accounting measures taken by Wall Street giant Merrill Lynch to avoid writing down billions of dollars in losses resulting from the sub-prime mortgage meltdown.

    While according to ABAlert, what Merrill did with investments in the sub-prime market estimated at $15 billion is not yet known. “One often-cited theory is that the bank transferred the banged-up investments from an available for sale account within its brokerage unit to a hold to maturity portfolio at affiliate Merrill Lynch Bank in late June.

    “Such a move,” the article continues, “would have enabled the company to follow friendlier accounting procedures, since the contents of the for-sale portfolio must be marked to market [assigned a value based on what they would fetch at current market rates] on a routine basis and the values of assets in the hold book don’t have to be updated until they come due or are sold.”

    “Thanks to this accounting maneuver, Merrill posted second quarter earnings that were stronger than expected.

    MERRILL forgot to downgrade itself couple of days ago ! Instead of donwgrading companies like WALMART ( what a coincedence that today of all days WALMART reported 3,1 % gain in August same store sales )
    :mad: :mad: :mad:
  2. I learned my lessons in 2000; that wall street brokerage firms are always in conflict interests, which also called hedge.
  3. here's where the ratings agencies and Wall Street have a incestuous relationship .... screw the customers just for fees

    Merrill is running for the border....

    Seeking Alpha
    AAA Rated CPDOs as Likely to Default as Junk Debt --CreditSights
    Thursday September 6, 5:38 am ET

    Credit derivatives known as CPDOs, constant proportion debt obligations, which own top investment grades from Moody's and S&P, may be as likely to default as high-risk, high-yield bonds, independent research company CreditSights reported. CPDOs use credit default swaps, an insurance contract that pays a buyer face value if the borrower does not pay its debt, to bet on a group of companies sustaining payments. If those companies' credit ratings are downgraded, the CPDO will see losses. "If you assume defaults and downgrades come in bunches rather than being evenly spaced out, CPDOs' default rates are more what you would expect for low junk ratings than for AAA," said David Watts, a CreditSights analyst. The drop of credit ratings of companies has caused some CPDOs to drop to 70% of face value. Watts explained that "even a relatively small number of downgrades" will create a scenario where "CPDOs will suffer and their ability to repay par at maturity will be far from certain." Banks have set up at least $4 billion in CPDOs. If they are unable to pay buyers, this will likely bring even more negative attention to credit rating companies and their part in the credit crisis. The recent plunge in the mortgage and housing sectors have brought heat on investment grading companies like Moody's and S&P, because they are failing to downgrade companies until their stock price has dropped significantly. Senate Banking Committee Chairman Christopher Dodd put the spotlight on these agencies last month when he asked why they awarded "AAA ratings to securities that never deserved them."
  4. btw,

    wasn't it Enron that played a shell game with unrealized losses ??
  5. im sure this is a mistake.

    an honest law abiding prestigous institution like merrill.

    i wont have it.

    they dont do things like that.

    trust me im a banker.:D :D
  6. dtan1e


    u mst be from merrill, from what i know its not a surprise, yrs ago i work for a french bank, whereby they "sell" losses fixed income assets to a separate entity owned by mgmt so that the losses somehow doesn't get reflected in the books, after the bank go public, the mgmt sell the portfolio back to the bank
  7. What is so surprizing if they have the ability and asset base to ride the problem out that is what they will do. They obviously see this problem (and it is a problem no doubt) and if this gets them out of a hole for expected the length of the problem and it is legal then why shouldnt they?

    You people are just upset becuse they didnt play by your rules but that is why the big accounting and legal firm firms get the massive fees they charge. Grow up and smell the daises if this problem really streches out then they may have a prob but that is now in the future.
  8. Merrill is hiding losses from their shareholders......

    I wish I could hide my gainers from the IRS
  9. Wake up of course you