Merrill Lynch sets up group to shed bad assets

NEW YORK Fri May 23, 2008 1:05am EDT

A Merrill Lynch sign is seen in Toronto, April 29, 2008. REUTERS/Mark Blinch

A Merrill Lynch sign is seen in Toronto, April 29, 2008.

Credit: Reuters/Mark Blinch

NEW YORK (Reuters) - Merrill Lynch & Co Inc MER.N is setting up a group to get rid of troubled or underperforming assets and named U.S. fixed income sales head Doug Mallach its head, according to an internal memo.

The group will help the brokerage figure out what to do with assets such as collateralized debt obligations that have been hammered by the subprime mortgage crisis. Mallach is putting together a team to figure out whether to sell, restructure, or hold onto these assets, a person briefed in the matter said.

Merrill Lynch has been battered by the widening credit crisis, having written down more than $30 billion of assets since the middle of last year.

That is why the bank is generally looking to slim down its trillion dollars of assets and raise capital. The investment bank is shrinking its mortgage and structured finance business, selling off assets that trade infrequently and reducing certain kinds of trading activity.

"We ... have to be better at using our balance sheet," said John Thain, chief executive, on a conference call in January.

Regulators and investors globally are pushing banks to shed assets and raise capital to reduce leverage, or debt levels relative to assets.

In addition to assets such as CDOs, Mallach will deal with assets that do not meet Merrill Lynch's performance hurdles.

The precise size of assets that Mallach -- a 17-year Merrill veteran -- will manage is not clear. The bank had more than $6.6 billion of net exposure to asset-backed CDOs as of March 28.

Mallach's group will focus on assets in the fixed income, currencies and commodities business, where he was previously head of the sales for the Americas.

Other banks have taken steps to separate underperforming assets from the rest of their balance sheet. Citigroup Inc (C.N) in November said Richard Stuckey, who helped stabilize hedge fund Long-Term Capital Management, was going to fix its troubled subprime mortgage portfolio.

(Reporting by Dan Wilchins; Editing by Andre Grenon)

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