Merrill Lynch Losses Equal One-Quarter Profits

by: David Enke August 29, 2008 | about stocks: MER / UBS    

David Enke

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A recent Financial Times article highlights some research it has done on the impact of the housing and credit crisis on Merrill Lynch. We all know of the problems and losses with Merrill and others, but when you add up the numbers the FT finds that in the past 18 months the losses have amounted to roughly one-fourth of the profits the company has made over its 36 years as a public company.

The recent credit problems have caused Merrill to report after-tax losses of more than $14 billion during a time when the company took nearly $52 billion in write-down on its balance sheet. Looking at historical data, the FT calculates that the company's total inflation-adjusted profits between 1971 and 2006 were close to $56 billion. More near-term, the $14 billion in losses also amounts to half of Merrill's profits since 2000. Amazing.

If this is not an advertisement for better risk management, I am not sure what is. Securitization and leveraged loans have certainly seen better days. To add insult to injury, it also turns out that Merrill Lynch had the highest ratio of credit related losses to historical profits when compared against ten large U.S. and European financial institutions. UBS (UBS) had the dubious honor of having the second highest ratio.

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This article has 7 comments:

  •  
    Aug 29 03:32 PM
    1/4 of their profits from 36 years. just staggering..
    Reply | Link to Comment
  •  
    Aug 29 03:46 PM
    Not so staggering when you realize all successful companies grow exponentially, just as the nominal economy does. The weight of the first terms in an exponential series is always going to be trivial compared to the last few, in either direction.
    Reply | Link to Comment
  •  
    Aug 29 09:47 PM
    Can anyone supply a number for the total of all the executive bonuses Merrill paid out over those 36 years? What percentage of gross income went toward bonus payments? Any chance of recouping that bonus money for building the financial house of cards that is currently collapsing?

    Summary of Wall Street Banking business plan:

    1) Borrow more than you can possibly imagine.
    2) Make risky bets in the marketplace.
    a) If you win, pay the company officers huge bonuses;
    b) When you lose, whine to the government for a bailout.
    3) Step down from your cushy executive position and retire with the bonus money you "earned".
    4) Collect big consulting fees on CNN while sympathizing with shareholders who lost nearly everything when the "never-gonna-happ... tail of the statistical universe wiped out their retirement savings on your watch.
    Reply | Link to Comment
  •  
    Aug 30 12:25 AM
    Best scam ever invented. And no end in sight,
    Reply | Link to Comment
  •  
    Aug 30 01:05 PM
    squasnut-you are so right.so is smartypants.i have no idea what wll bring this geedy,thieving crookedness to an end.it will destroy this once great country
    Reply | Link to Comment
  •  
    Aug 30 11:06 PM
    >>it will destroy this once great country

    I think it is already destroyed.
    Reply | Link to Comment
  •  
    Aug 31 02:30 PM
    I think shareholders should sue for negligence....and investigate for fraud.

    Maybe the common shareholders could get some revenge, at least, by putting these guys in jail.
    Reply | Link to Comment
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