US brokerage heavyweight Merrill Lynch & Co. Inc could take a big hit in its
profits if it writes down over $1 billion in subprime lender assets it bought
just eight months ago.
Lynch is expected to write down at least part of the goodwill-related assets from
its $1.3 billion purchase of First Franklin Financial Corp, the No. 5 US subprime
originator in the first quarter, reports quoted analysts as saying.
subprime mortgage meltdown has already caused two Bear Stearns & Co hedge
funds to collapse and Lehman Brothers to close a unit.
hit to Merrill''s goodwill related to subprime loans may not be the only one among
Wall Street firms, analysts said. Morgan Stanley, which last year paid $706 million
for subprime lender Saxon Mortgage, also could face a write-down, though not on
a similar scale, they said.
goodwill represents a premium over the value of a target company''s tangible assets,
a write-down indicates a company overpaid for the acquisition.
detailed information about Merrill''s acquisition of First Franklin''s loans were
not available, reports recently filed with US banking regulators show that Merrill
Lynch Bank & Trust Co., where much of the First Franklin franchise is kept,
lost $111 million through the first half of 2007.
Lynch put $999 million worth of goodwill on its balance sheet, primarily from
the First Franklin acquisition, the company''s financial statements show.
this month, Merrill Lynch said it would sell life insurance businesses to Dutch
insurer Aegon NV for $1.3 billion, which happens to be the same amount it paid
for First Franklin.
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