Interest Rate Roundup

Friday, January 11, 2008

Merrill's $15 billion hit; UBS' surprising mortgage admission

Looks like the cost of the mortgage mess continue to mount on Wall Street. Merrill is the latest casualty, with a whopping $15 billion loss coming soon, according to the New York Times. In response, the firm will be forced to ask for more help from foreign investors or private equity firms, who have been actively bailing out companies as diverse as Citigroup and UBS in recent months. An excerpt:

"Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.

"Merrill, the nation’s largest brokerage firm, is expected to disclose the huge write-down when it reports earnings next week, according to people who have been briefed on its plans. The loss far exceeds the $12 billion hit many Wall Street analysts had forecast.

"To shore up its deteriorating finances, Merrill is now in discussions with investors in the United States, Asia and the Middle East, including American private equity firms, to raise about $4 billion in the coming days, these people said."

Speaking of UBS, the global bank basically admitted it has no idea how bad the U.S. mortgage market will get -- or how much money it will ultimately lose on its mortgage investments. The complete shareholder letter is available here. The excerpt I'm referring to is:

"We cannot, at this time, accurately predict the future development of US residential mortgage markets and therefore the ultimate impact on our positions in sub-prime mortgage related securities."


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