1. MERRILL LYNCH FAILURE 2008 Monika Hoang Yen Lan IES09049 1 International Finance

2. How Merrill Lynch faltered and fell ? 2 International Finance

3. O UTLINE A. History of Merrill Lynch B. November 2007 C. Subprime mortgage crisis D. Bank of America buys Merrill Lynch 3 International Finance

4. H ISTORY  Founded in January 6, 1914 by Charles Merrill & Edmund Lynch  Headquarter: New York City, USA  Today it’s a subsidiary of Bank of America  The Thundering Herd : #1 stockbroker  2 companies : *wealth management *fixed-income or bond-trading operations 4 International Finance

5. B LACK DAYS 1 November 2007 Chief executive Stan O'Neal quits was removed with $159m payout after sub-prime investments result in $2bn of losses. December John Thain, former boss of NYSE, accepts $15m signing on bonus to take over with mandate to steer bank out of trouble. January 2008 Thain reports $9bn loss for fourth quarter with write-down of $16.7bn on sub-prime investments. April $2bn loss in first quarter of 2008 14 September BoA says it will buy Merrill Lynch 3 October Thain agrees to stay at new bank as head of investment banking. 15 October BoA given $25bn of taxpayers' money to shore up Merrill's books. 16 January 2009 Merrill reports $15.3bn loss in the last three months of 2008. 22 January Thain ousted by board. Leaks reveal he spent $1.22m on renovating his office, including an $87,784 rug and a $35,115 commode. 21 April BoA takes $13bn hit on bad loans. 5 International Finance

6. 6  Write-down of $8.4 billion in losses associated with the national housing crisis.  CEO Stanley O’Neal left the company with $159m payout  Unauthorized merger proposal with Wachovia banking corporation November 2007 Stanley O’Neal lost his job but he will be well rewarded for his failure

7. S UBPRIME MORTGAGE CRISIS 7 International Finance  John A. Thain, CEO of NYSE was named as O’Neal successor.  Why? Fixed-income or bond-trading operation invested heavily in relatively high-risk, high-return securities backed by subprime home mortgages The fire Merrill Lynch was playing was knows as collateralized debt obligation (CDOs) - derivatives These securities have lost value as housing prices have fallen and the number of foreclosures has grown.  In one year between July 2007 and July 2008, Merrill Lynch lost $19.2 billion, or $52 million daily.

8. S OME NUMBERS 8 International Finance  January 2008 - $9.83 billion fourth quarter loss incorporating a $16.7 billion write down of assets associated with subprime mortgages.  April 2008 - net loss of $1.97 billion for the first quarter of 2008  July 2008 - $4.9 billion fourth quarter losses for the company from defaults and bad investments in the ongoing mortgage crisis.  Bloomberg reported in September 2008 that Merrill Lynch had lost $51.8 billion in mortgage-backed securities as part of the subprime mortgage crisis  The company's stock price had also declined significantly during that time.

9. B ANK OF A MERICA BUYS M ERRILL L YNCH 9 International Finance  September 14, 2008 – BoA announced it was in talks to purchase Merrill Lynch  Within 48 hours the deal was concluded  It was sold for $50.3 billion in stock, or $29 a share  It was an the end of America’s 94-year-old most famous brokerage house, whose ubiquitous corporate logo was a hard-charging bull.

10. A GOOD FIT International Finance 10  Global financial services giant: from fixed-income trading to stock underwriting to credit card lending, which will rival Citigroup, the biggest US bank in terms of assets.  Bank of America does have an investment bank already, but it has never been that terribly strong.  Mr. Lewis called Merrill's 17,000 financial advisers "the crown jewel of the company.“  Complementary businesses like IT John Thain, Merrill Lynch’s chief, left, and Bank of America’s chief, Kenneth Lewis, agreed to a merger

11. 11 International Finance But for Bank of America and Merrill Lynch, their Love was blind

12. 12 International Finance Problems:  More layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.  Thain was designated to become president of Merrill Lynch Wealth management, the newly combined company  But January 22, 2009 Lewis forced Thain to resign after losses at Merrill Lynch proved to be far larger than the due diligence team at BoA had estimated.  Leaks reveal he spent $1.22m on renovating his office, including a $1,400 wastebasket.

13. THANK YOU ! Monika Hoang Yen Lan IES09049 International Finance 13