Merrill Lynch's long-term senior debt rating cut to 'A1' vs 'Aa3'- Moody's

Merrill Lynch's long-term senior debt rating cut to 'A1' vs 'Aa3'- Moody's

	Published : Thu, 25 Oct 2007 05:34 By : Agencies Print this Story

MUMBAI (Thomson Financial) - Moody's Investors Service downgraded the long-term senior debt rating of Merrill Lynch and Co Inc to 'A1' from 'Aa3' and assigned a negative outlook to the new ratings.

The ratings follow Merrill Lynch's announcement that the firm will increase the size of its previously disclosed write-downs in structured credit products and sub-prime mortgages to 7.9 bln usd from 4.5 bln.

Moody's said Merrill Lynch's short-term 'Prime-1' rating was affirmed.

The agency said that the increase in the provision was surprisingly large and supports its view that the firm suffered a risk control failure.

'The jump in the write-down suggests that management did not fully understand their exposures', Moody's said.

In the specific case of Merrill Lynch's CDO business, Moody's said that profit growth targets apparently superseded risk considerations. Management allowed a sizeable concentration to develop and the resulting markdowns overwhelmed the benefits of Merrill Lynch's business and revenue diversification. As a result, Merrill Lynch underperformed its industry peers by a wide margin, it said.

Moody's said the resolution of the negative outlook will be driven by an initial focus on the potential for further losses remaining in Merrill Lynch's disclosed 15.2 bln usd of ABS CDO-related exposures and in its 5.7 bln usd of sub-prime mortgage related exposures.

However, the rating agency also noted that Merrill Lynch's liquidity profile remains quite strong, based on a large base of capital and bank deposits.

Moody's also cut by one notch the long-term deposit ratings on subsidiaries Merrill Lynch Bank USA and Merrill Lynch Bank & Trust Company FSB to 'A1' from 'Aa3'.

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