Merrill Lynch Cuts Back Portfolio, Bankers

Weeks after announcing poor 4Q07 earnings and massive write-downs, Merrill Lynch is making drastic cuts to its structured finance group. In tandem with recently laying off as many as 60 people, by some accounts, the company will wind down much of its entire structured products portfolio. That means the company could put as much as $30 billion in CDOs, MBS and other structured product paper on the block, according to people familiar with the company. "They are winding down their exposure, but I don't know if that means they are shutting the business or not," a market source familiar with the bank said. "They are definitely trying to reduce their exposure, so that's going to result in a lot of selling." As for the job cuts, they started near the very top, with Ahmass Fakahany retiring as Merrill's co-president and COO. The other co-president, Greg Fleming, remains at the bank, according to news reports. Elsewhere in the company, those in the ranks of director and managing director were targeted for layoffs, according to market sources. Among those who lost their jobs were James Yang, a managing director who was head of its Asia Pacific team; Geoffrey Witt, a managing director who ran its student loan ABS business and who had been with the bank for nearly 20 years; and Grant Jones, who specialized in commercial ABS deals, as well as transactions from other asset classes. Michael Blum, who was the global head of Merrill's ABS business, remains at the bank, said market sources, and he will be in charge of winding down the structured products portfolio. Among those left standing in the structured finance group is Ted Breck, who runs the term securitization business and reported to Blum, sources said. Many of the brokerage's bankers were holding out until Feb. 1 before leaving the company, sources said, after their stock positions would have vested on Jan. 31. "I've heard stories of sales guys who have signed at other shops, but they cannot do anything until after they get that block of stock," one source said. Although a spokeswoman for Merrill Lynch would not comment on the verity of the layoffs or portfolio reductions, the company's situation is far from unique. "CDO groups are gone everywhere," a market source said. "Mortgage groups are reduced. There is no subprime business, so you don't need those guys anymore. If you keep anyone it's only for secondary trading." The latest developments at the investment bank follow news of poor performance in its fourth quarter. Merrill Lynch took a $16.7 billion 4Q07 loss and said net revenue was negative $8.1 billion.