Wednesday, Oct 24, 2007
Well, now is this really a surprise
New York Times: Merrill Lynch Set to Report $2.5 Billion in Added Loss
I am listening to CNBC and the news is that the losses may be more like $10 BILLION. Here we now have the "confessionals".
Merrill Lynch is expected to report today that it will add about $2.5 billion more to the $5 billion worth of write-downs it has already announced, according to a person briefed on the situation.
Merrill reports its third-quarter earnings this morning. The bank announced earlier this month that it expected to write down $5 billion because of losses in its fixed-income unit. Most of the losses, the bank said, were tied to the decline in value of complex debt instruments called collateralized debt obligations, whose value has diminished in recent months as credit markets have been hit by a collapse in the subprime mortgage market.
10 Comments
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1. tyrellcorporation said...
'were tied to the decline in value of complex debt instruments called collateralized debt obligations, whose value has diminished in recent months as credit markets have been hit by a collapse in the subprime mortgage market.'
... I suggest their 'value' wasn't there in the first place!!!
2. inbreda said...
holy ****!
If I understand correctly, these losses stem largely from the fact that the loans that have been given to people outweigh both their ability to pay, and the value (by any rational calculation) of the asset.
This is going to have such a backlash it will knock any other 'HPI supporting argument' out of the park. It doesn't matter how many people live in the UK relative to the number of properties - if the banks wont dare to lend more than 2x income, then that is what will set house prices. Period!
3. Bertywooster said...
Value is a contentious concept within economics. In this article I presume she means price when referring to value and this would be set by the so called “net realisable market value” of the “asset”.
4. confused76 said...
Situation in the UK cannot be different
maybe worse
5. tyrellcorporation said...
Am I right in that none of these weirdo financial debt instrument thingies have ever been marked to market and that they are effctively valued by ratings agencies plucking figures from the air (more or less). Their value is proving extremely hard to work out because they are so nebulous.
6. lvmreader said...
@tyrellcorporation.
Spot on. All from the Never Never Land of "Quantitative Science".
See the scathing (but entirely correct in my opinion) article Nassim Taleb wrote on the "pseudo-science" of Quants.
The pseudo-science hurting markets
http://www.ft.com/cms/s/4eb6ae86-8166-11dc-a351-0000779fd2ac.html
Last August, The Wall Street Journal published a statement by one Matthew Rothman, financial economist, expressing his
7. whiteknight said...
The thing we learn , hopefully, is that around 6 weeks ago people thought they did not know what the size of the hole was AND today - we STILL DO NOT KNOW what size the hole is.
8. whiteknight said...
Cutting its credit rating on the bank a notch to A-plus, Standard & Poor’s described the writedowns as “staggering” and said the increases “heighten our concerns regarding the company’s risk management and business strategy”. David Trone, analyst at Fox-Pitt Kelton, said the “horrendous” writedowns raised “serious credibility issues”.
serious credibility issues with who? Why is the credit rating agency "staggered"? It was providing credit ratings on the entity. Good ones.
9. whiteknight said...
Lets also get something else clear again.
Pointing to "this banks" writedowns cf. "that banks" writedowns are a near irrelevance at this point in time.
To conclude one banks "controls" were better than "anothers" on current information is trying to create facts out of chaos.
The numbers are huge and feel nearly arbritrary ... because they are.
10. whiteknight said...
Are some of the mortgages of the 6000 people to be fired between BofA and Merrill still rated in instruments as "non" "sub-prime"?