Merrill Lynch on Thursday reported a $9.8 billion loss for the fourth quarter, the largest quarterly loss in its 93-year-history, as troubles in the subprime mortgage market took another big bite out of its balance sheet.
Merrill, one of the Wall Street firms that has been hardest hit by the subprime hurricane, said Thursday that it recorded more than $14 billion in write-downs and “credit valuation adjustments” in the fourth quarter related to subprime mortgages and collateralized debt obligations, which are complex debt securities often linked to subprime mortgages. That is on top of $7.9 billion in write-downs at Merrill in the third quarter.
The rise in defaults and delinquencies among United States homeowners has sharply reduced the value of subprime-related securities, many of which are held by Merrill and other financial firms. The latest write-downs pushed Merrill to its second consecutive quarterly loss as well as a $7.8 billion loss for the entire year. Merrill hasn’t lost money for a full year since 1989, Bloomberg News reported.
Just out of curiosity, does anyone remember when the subprime mess first started to be talked about? I remember Kevin Drum talking about the housing market bubble as early as 2003-2004, but where was the first mention of possible problems with subprimes? When?
*** Update ***
The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go.
The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.
Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. For December, construction fell by a bigger-than-expected 14.2 percent.