Merrill to curb some securities

From Bloomberg News

Merrill Lynch & Co. said it would cut back on packaging home loans and consumer debt into securities after the collapse of the sub-prime mortgage market eroded demand for the products -- and cost the Wall Street giant more than $24 billion in losses.

“Opportunities in many areas” of so-called securitization “will be minimal for the foreseeable future and our activities will be reduced accordingly,” Merrill said in an e-mailed statement. The firm will continue packaging corporate loans and derivatives into securities.

Merrill issued the statement after Chief Executive John Thain told investors at a conference Wednesday in New York that the firm planned to exit its securitization businesses, which generated as much as 15% of the firm’s revenue in recent years. Jessica Oppenheim, a spokeswoman for the company, said the statement was released to clarify Thain’s remarks. She declined to elaborate on it.

“That market won’t recover for a few years,” said Benjamin Wallace, a money manager at Grimes & Co. in Westborough, Mass. “It’s just a practical decision Thain is voicing.”


The market for so-called collateralized debt obligations, or CDOs, which repackage assets into new securities with varying degrees of risk, has been frozen since last July when two Bear Stearns Cos. funds that invested in them collapsed. Merrill Lynch will focus on improving its rankings among underwriters of stocks and bonds, Thain said.

“There’s no reason we shouldn’t be able to capture a bigger slice of the investment-banking fee pie,” Thain said. “We should be top three as opposed to top five.”

As a result of Merrill’s losses last year, the securities firm said Wednesday that it gave no 2007 cash bonuses to its top three executives. Instead, the firm gave them “retention” stock options to promote “continuity of the management team as they continue to navigate through challenging market conditions,” the company said in a Securities and Exchange Commission filing.