A recent Financial Times article highlights some research it has done on the impact of the housing and credit crisis on Merrill Lynch. We all know of the problems and losses with Merrill and others, but when you add up the numbers the FT finds that in the past 18 months the losses have amounted to roughly one-fourth of the profits the company has made over its 36 years as a public company.
The recent credit problems have caused Merrill to report after-tax losses of more than $14 billion during a time when the company took nearly $52 billion in write-down on its balance sheet. Looking at historical data, the FT calculates that the company's total inflation-adjusted profits between 1971 and 2006 were close to $56 billion. More near-term, the $14 billion in losses also amounts to half of Merrill's profits since 2000. Amazing.
If this is not an advertisement for better risk management, I am not sure what is. Securitization and leveraged loans have certainly seen better days. To add insult to injury, it also turns out that Merrill Lynch had the highest ratio of credit related losses to historical profits when compared against ten large U.S. and European financial institutions. UBS (NYSE:UBS) had the dubious honor of having the second highest ratio.