|
Merrill's risk with hedges
|
 |
October 1, 1998: 5:53 p.m. ET
Nation's leading brokerage house has $2 billion exposure to hedge funds
|
NEW YORK (CNNfn) - Merrill Lynch & Co., the nation's largest brokerage firm, disclosed an exposure of just over $2 billion to hedge funds, the risky investment vehicles that has become Wall Street's latest fascination.
The disclosure follows similar moves from commercial and investment banks in recent days and comes just hours after Federal Reserve Chairman Alan Greenspan defended a bailout of the high profile, yet highly secretive, Long-Term Capital Management.
In a statement, Merrill Lynch divulged that 95 percent of its exposure to hedge funds -- which use leverage to try to generate returns for sophisticated investors -- was secured by low-risk U.S. government and agency debentures as well as cash.
The net exposure is $84 million.
"This level of exposure is a typical amount and is well within its established credit limits with respect to each individual hedge fund client," the company said.
Merrill Lynch was one of more than a dozen banks that worked with the Federal Reserve Bank of New York in mid-September to bail out Long-Term Capital in the tune of $3.6 billion. The fund was rumored to be crushed under the weight of $100 billion worth of investments gone awry.
Specifically, Greenwich, Conn.-based Long-Term Capital represents Merrill's largest exposure at $1.4 billion but it is fully collateralized, the company said. The remaining exposure is broadly diversified with the second-largest holding at about $200 million.
Prior to the bail-out, Merrill Lynch said the remaining balance of its original equity investment was less than $2 million, which has now been fully reserved.
|
|
|
|
|
|
Merrill Lynch
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
