Reply #135: Merrill Lynch 2007 CDOs under water: consultant

[UpInArms]

http://www.reuters.com/article/bondsNews/idUSN3043513720080730?sp=true

NEW YORK (Reuters) - Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) repackaged debt deals from 2007 have all performed poorly, which the bank should have predicted based on what was going on in the mortgage market at the time, consultant Janet Tavakoli said on Wednesday.

Tavakoli said in a report to clients that of the 30 collateralized debt obligations (CDOs) Merrill sold in 2007, every one has either had its best-rated portion cut to junk, is in technical default, is being liquidated, or is in danger of being liquidated.

The poor performance suggests that Merrill was underwriting deals it knew or should have known were bad, Tavakoli said. That underwriting, combined with similar moves from other banks -- has shaken investor faith in CDOs, Tavakoli wrote in the report. Her company is Tavakoli Structured Finance Inc.

Merrill Lynch spokesman Mark Herr declined comment.

"Investment banks have a huge credibility problem when trying to explain that they 'didn't know the gun was loaded," Tavakoli wrote.

...more...