Merrill deals may be under scrutiny

Report: SEC likely to examine transactions bank made with hedge funds to reduce its exposure to mortgage-backed securities.


LONDON (CNNMoney.com) -- Merrill Lynch & Co. Inc. may have engaged in transactions with hedge funds to to buy time before reporting losses tied to risky mortgage securities, according to a published report.

The Wall Street Journal said the Securities and Exchange Commission is likely to investigate the deals to see whether the bank disclosed enough information about its mortgage exposure to investors during the summer.

One transaction the newspaper reported involved a hedge fund buying $1 billion in commercial paper containing mortgages issued by an entity related to Merrill. The hedge fund was guaranteed a minimum return and had the right to sell the debt back to Merrill after one year, the report said.

According to the newspaper, Merrill (Charts, Fortune 500) may have been required to take a writedown if the entity issuing the paper wasn't able to sell it to other investors.

A Merrill spokeswoman told the paper: "We don't comment on specific transactions and we are confident in the appropriateness of our marks."

Merrill took a massive $7.9 billion writedown related to its mortgage assets in the third quarter. That huge loss, which was much bigger than expected, led to the ouster of CEO Stanley O'Neal and also has fueled concerns that the firm and other Wall Street banks may report further mortgage losses. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.