Merrill’s debt protection costs fall following Spitzer deal

Spitzer launched an investigation into allegations that Merrill Lynch equity research analysts were inflating ratings to secure the firm lucrative equity manadates from corporates. The deal thrashed out with Spitzer will result in Merrill Lynch apologising to investors, paying $100 million in fines and promising to insulate its equity analysts from their counterparts in investment banking.

Prior to Spitzer's probe, five-year senior credit default swaps on Merrill Lynch were trading at 53bp/60bp. Investigations by the attorney general resulted in spreads widening to as high as 97bp, according to traders.

“$100m is not that bad for Merrill, and it has reassured the market that the credit is not in a downward spiral,” a credit derivatives trader told RiskNews.

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