Merrill Lynch & Co. has long been known as one of the premier wealth management firms in the United States. Founded in 1915, the company has managed investments for generations of wealthy Americans and their families. But in the wake of the 2008 financial crisis, Merrill Lynch & Co. has become a cautionary tale of how quickly a formerly venerable financial institution can fall prey to risky investments and poor risk management.
At the heart of the story is the firm’s involvement in the subprime mortgage market, which collapsed in 2007. During the boom years of 2004-2005, the firm aggressively moved into the subprime lending market, underwriting billions of dollars in mortgages to borrowers with weak or limited credit histories. Merrill Lynch & Co. was not only doing this on its own behalf, but was securitizing a large portion of its mortgage loans, packaging them together and then selling them as mortgage-backed securities to other investors.
When the subprime mortgage market began to collapse, Merrill Lynch & Co. was caught off guard. As investors became wary of the growing number of defaults and foreclosures, Merrill Lynch & Co. began to suffer hefty losses on its mortgage-backed securities. By late 2008, the firm was on the brink of collapse.
Facing bankruptcy, Merrill Lynch & Co. was largely spared from disaster when Bank of America acquired the company in January 2009. Bank of America, the largest commercial bank in the U.S., put an additional $50 billion into the firm’s coffers, and the government provided additional guarantees.
While Merrill Lynch & Co. managed to avoid bankruptcy, it has been forced to make major changes in the way it does business. The firm has scaled back its involvement in the subprime mortgage market, refocusing its efforts on more traditional forms of wealth management, such as portfolio management, financial planning and retail brokerage services.
For over a hundred years, the Merrill Lynch name has been synonymous with financial security. Now, in the aftermath of the financial crisis, the firm is struggling to reclaim its reputation as a trusted source of investment advice and wealth management services. Only time will tell if Merrill Lynch & Co. is able to reinvent itself and once again become a major player in the world of financial services.
At the heart of the story is the firm’s involvement in the subprime mortgage market, which collapsed in 2007. During the boom years of 2004-2005, the firm aggressively moved into the subprime lending market, underwriting billions of dollars in mortgages to borrowers with weak or limited credit histories. Merrill Lynch & Co. was not only doing this on its own behalf, but was securitizing a large portion of its mortgage loans, packaging them together and then selling them as mortgage-backed securities to other investors.
When the subprime mortgage market began to collapse, Merrill Lynch & Co. was caught off guard. As investors became wary of the growing number of defaults and foreclosures, Merrill Lynch & Co. began to suffer hefty losses on its mortgage-backed securities. By late 2008, the firm was on the brink of collapse.
Facing bankruptcy, Merrill Lynch & Co. was largely spared from disaster when Bank of America acquired the company in January 2009. Bank of America, the largest commercial bank in the U.S., put an additional $50 billion into the firm’s coffers, and the government provided additional guarantees.
While Merrill Lynch & Co. managed to avoid bankruptcy, it has been forced to make major changes in the way it does business. The firm has scaled back its involvement in the subprime mortgage market, refocusing its efforts on more traditional forms of wealth management, such as portfolio management, financial planning and retail brokerage services.
For over a hundred years, the Merrill Lynch name has been synonymous with financial security. Now, in the aftermath of the financial crisis, the firm is struggling to reclaim its reputation as a trusted source of investment advice and wealth management services. Only time will tell if Merrill Lynch & Co. is able to reinvent itself and once again become a major player in the world of financial services.