Ah, here's a little of it:For a time, Merrill’s business flourished as Mr. O’Neal took on more risk and made deep cuts. In 2006, Merrill made $7 billion from using its capital to trade for itself and clients, compared with $2.2 billion in 2002. Some riskier businesses that the firm was involved with, like private equity and lending, fared well this summer.Merrill’s exposure to the volatile and ultimately toxic market for complex debt instruments called collateralized debt obligations exploded to more than $40 billion from around $1 billion about 18 months ago. Initially, the increased risk was a boon — part of a shift from the firm’s classic position as a money manager with an excellent stock underwriting business to a bank that had become increasingly hooked on the high-octane, high-risk returns that came from investing its own money. [emphasis added]http://www.nytimes.com/2007/10/29/business/29merrill.html?pagewanted=1I have very little doubt when we poke around in the bowels of the other actors in this drama (Citibank, etc.) we will find much the same thing; firms no longer content to have "good earnings", but who tried to skim off the gravy without understanding the risk they were absorbing at the same time. That's easy to do when times are good, and then it comes back and bites you and everybody says "Gee, that's a surprise!"
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