Merrill Lynch-Bankers Trust Hedge Exposure: $2.96 Billion

Merrill Lynch & Co. and Bankers Trust Corp., two of the companies involved in the takeover of Long-Term Capital Management, said Thursday that their combined exposure to hedge funds is at least $2.96 billion.

Merrill Lynch, the biggest U.S. brokerage, said its total hedge fund exposure is $2.08 billion. Bankers Trust said hedge funds owe it $875 million.

BankAmerica Corp., which on Wednesday became the biggest U.S. bank, said it has less than $300 million in loans outstanding to hedge funds.

Merrill Lynch’s hedge fund exposure includes $1.4 billion in exposure to Long-Term Capital Management, the hedge fund run by John Meriwether that was taken over by its lenders last week to avert bankruptcy. Merrill Lynch holds $1.999 billion in collateral--in cash, U.S. Treasuries and agency securities--against the total, including its entire Long-Term Capital Management exposure.

Of Bankers Trust’s exposure, $25 million is in unsecured loans and the remainder is backed by cash and Treasury securities. The $850 million that is collateralized is in the form of foreign exchange and derivative contracts, the bank said.

BankAmerica Chairman Hugh McColl said that his bank’s loans to the funds are secured. At a news conference in Dallas to announce the completion of the merger between BankAmerica and NationsBank Corp., McColl said the old BankAmerica had about $1.1 billion in total lines of credit extended to hedge funds, of which outstanding loans are “below $300 million.”

BankAmerica has an investment in the D.E. Shaw hedge fund, he said. The old NationsBank had no loans to hedge funds and no investments in them, McColl said.

Bankers Trust’s disclosure came after its stock fell as much as 13% Wednesday on speculation that hedge funds weren’t making payments on the contracts. Hedge funds have met all the bank’s requests to come up with money to back the contracts, according to a statement Bankers Trust made today in a filing with the Securities and Exchange Commission.

Merrill Lynch shares plunged $3.19 to close at $44, while Bankers Trust dove $3.94 to $55.06. Both trade on the New York Stock Exchange.

Chase Manhattan Corp. revealed earlier this week that it has $3.2 billion in exposure to hedge funds, 72% of which is backed by cash and Treasuries, according to analysts. Of the remaining portion, $300 million is unsecured and the rest is backed by corporate securities, they said.

Unlike Merrill Lynch, Lehman Bros. and other Wall Street firms, including Morgan Stanley Dean Witter, haven’t disclosed their total exposure to all hedge funds.