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Merrill Lynchˇ¦s Asset Write-Down  
 
Product Ref: 08/401C Company: Merrill Lynch & Co., Inc

Product Type: Case Industry: Asset Management and Custody Banks
Banks & Diversified Financials
Investment Banking and Brokerage

Related Product(s): Teaching Note
Authors: Yanling Guan   Mary Ho
Since late 2003, Merrill Lynch & Co., Inc ("Merrill Lynch") had become the world's largest underwriter of collateralised debt obligations ("CDOs"). The assets of CDOs comprised some of the riskiest tranches of mortgage-backed securities mostly tied to subprime mortgages. With the collapse of the subprime mortgage market and declining liquidity in the summer of 2007, Merrill Lynch was caught with a substantial number of CDOs that had diminished sharply in value. Disillusioned with chief executive Stanley O'Neal's leadership, the management of Merrill Lynch called for a series of meetings to assess the firm's exposure to subprime-backed CDOs and redefine its risk-management strategy. To the management, an embarrassing write-down seemed inevitable for the third quarter of 2007, but how much of such assets should be written down and how quickly? What would be the implications for the firm in making such an announcement?
Functional Area : Accounting & Control
Finance & Investments

Issues: Fair-value accounting, mark-to-market concept, accounting choice, asset write-down, subprime mortgage crisis
Length: Text: 9 pages
Exhibits: 13 pages
Country: United States of America

Pub. Year: 2008 Level of Difficulty: 2
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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