Merrill Lynch suffers subprime woes

NEW YORK - US investment bank Merrill Lynch has succumbed to the market crisis created by the subprime mortgage lending crash, losing more than any other bank so far. Merrill announced first $5 billion, increasing the total to $8 billion weeks later, in subprime-related losses, causing unexpected overall third-quarter losses.

On October 5, the bank announced a write-down of $4.5 billion in loans linked to collateralised debt obligations and about $463 million in loans to private equity companies. Merrill's subprime mortgage unit, First Franklin Financial, has already cut operations, branches and jobs in the wake of the meltdown. It boosted the losses to $8 million in late October.

While Merrill claimed to be beginning to see signs of a return to normal market activity, two of its senior bankers had departed - Osmon Semerci, head of Merrill's subprime-laden fixed-income, commodities and currencies division, and Dale Lattanzio, head of the division's US operations.

To make matters worse, Merrill is being sued for fraud and misrepresentation by Metro PCS Communications. The lawsuit rests upon the supposedly low risk and high liquidity investment of assets. The lawsuit was filed over $134 million of Metro's money invested by Merrill brokers, underwritten by the bank and backed by mortgage assets. Metro is the largest US pay-as-you-go mobile phone service provider.