Undisclosed Losses At Merrill Lynch Lead To A Trading Inquiry

Undisclosed Losses At Merrill Lynch Lead To A Trading Inquiry - 3/6/2009

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Undisclosed Losses At Merrill Lynch Lead To A Trading Inquiry
Louise Story and Eric Dash

International Herald Tribune. March 6, 2009
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EXCERPT: One Merrill Lynch trader apparently gambled away more than $120 million in the currency markets. Others seemingly lost hundreds of millions on tricky credit derivatives. But somehow all this red ink did not spill into plain view until after Merrill earmarked billions for bonuses and staggered into the arms of Bank of America. Inside Bank of America headquarters here, executives are asking why. The bank is investigating how Merrill accounted for wayward trades in the final, frantic months of 2008 and why at least one big loss was slow to appear on Merrill's books. Of particular concern are the activities of a Merrill currency trader in London, Alexis Stenfors, whose trading has come under scrutiny by British regulators, according to people briefed on the investigation. The loss Stenfors is believed to have incurred so alarmed Bank of America that this week the bank examined the books of other traders who were on vacation. Bank of America's embattled chief executive, Kenneth Lewis, is trying to bridle Merrill's traders, whose rush into risky investments nearly brought down the brokerage firm. But questions over the Merrill losses in particular, who knew about them, and when keep swirling. Merrill hemorrhaged $13.8 billion during the final three months of 2008 alone. Bank of America's shareholders did not learn of that gaping hole until after they approved the merger of the two companies on Dec. 5. Nor was the extent of the loss fully known when Merrill paid out $3.6 billion in bonuses, which were based on estimates of the firm's performance as of Dec. 8. When the problems became clear, Bank of America was forced to seek a second, multibillion-dollar rescue from Washington.

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