Merrill Lynch’s wrote off £3.85bn in bad credit mortgage debts

Merrill Lynch’s wrote off £3.85bn in bad credit mortgage debts last week, and showed the exit door to chief executive Stan O’Neal on Tuesday.

The Exchange Commission is investigating how Merrill valued securities tied to mortgages and how it disclosed them to investors in an attempted to cover up the true size of the losses.

It has been suggested that Merrill sold mortgage papers to hedge funds, on the understanding it would buy them back later at a fixed price. This allowed the bank to remove debts temporarily from its balance sheet – a former Enron tactic.

Leading New York securities lawyer Jacob Zamansky said: ‘If it turns out that Merrill played games in valuing their portfolio, there will be lawsuits.’

Experts expect Merrill to write of at least another $4bn in the next quarter because of bad credit mortgage debts.