Merrill reveals $6.3 billion more in subprime-CDO exposure

NEW YORK (Reuters) - Merrill Lynch & Co Inc MER.N on Wednesday said its total exposure to risky collateralized debt obligations and subprime mortgages is $27.2 billion, or about $6.3 billion more than what the company disclosed late last month.

Merrill’s larger figure is mostly because of a deeper level of disclosure surrounding its banking operations. For the first time, the world’s largest brokerage disclosed $5.7 billion worth of exposure to U.S. subprime mortgages at Merrill Lynch Bank USA, a Utah-chartered industrial bank, and Merrill Lynch Bank & Trust Co., a full-service thrift.

Those operations file disclosures and financial statements with U.S. banking regulators, which don’t require details on subprime exposure.

In addition, Merrill said its exposure to CDOs is now $15.82 billion, or about $600 million more than what the company revealed in its third-quarter earnings release on October 24. The figure is larger because a hedge against potential loss was terminated recently after a dispute with a counterparty, which Merrill declined to name. That meant additional exposure went back to Merrill.

CDOs and subprime mortgages were largely responsible for Merrill’s $2.3 billion loss in the third quarter, the largest in the company’s history. An $8.4 billion write-down, mostly related to subprime mortgages and CDOs, triggered the loss.

Analysts fear Merrill and other Wall Street banks will have to record further write-downs because the market for CDOs and subprime mortgages remains in turmoil.

Mike Mayo, an analyst at Deutsche Bank, has estimated that Merrill’s additional write-down could top $10 billion.

U.S. banks have had to slash the value of CDOs and subprime mortgages because they are linked to a rising tide of defaults on home loans given to borrowers with weak credit.

Reporting by Tim McLaughlin