Merrill Lynch -ed CDO Dough? or DOH!!!!
A follow up to yesterdays Merrill Lynched CDO story...
Merrill Lynch lent about 75% of the purchase price and gave up any potential gains on $30.6 billion of CDO securities it sold to Lone Start Funds this week...
Merrill sold the CDO's at a loss of 78% or 22 cents on the dollar... worse yet, Merrill is still "on the hook" for any losses.
A drop in the value of the CDOs by about a another 5 cents would wipe out the equity from Lone Star and leave Merrill back on the hook for the exposure.
BofA analysts: Lone Star effectively "purchased a call option on the value of the subprime assets backing the CDO"
for the $1.68 billion it paid from its own funds, or about 5 cents on the dollar. Dough!
Lone Star bought "the upside of the underlying subprime assets in the CDO pools" while Merrill retained "most of the downside." DOH!!!
Hattip to Bloomberg
Merrill Lynch lent about 75% of the purchase price and gave up any potential gains on $30.6 billion of CDO securities it sold to Lone Start Funds this week...
Merrill sold the CDO's at a loss of 78% or 22 cents on the dollar... worse yet, Merrill is still "on the hook" for any losses.
A drop in the value of the CDOs by about a another 5 cents would wipe out the equity from Lone Star and leave Merrill back on the hook for the exposure.
BofA analysts: Lone Star effectively "purchased a call option on the value of the subprime assets backing the CDO"
for the $1.68 billion it paid from its own funds, or about 5 cents on the dollar. Dough!
Lone Star bought "the upside of the underlying subprime assets in the CDO pools" while Merrill retained "most of the downside." DOH!!!
Hattip to Bloomberg
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