Merrill Lynch's new CEO, John Thain, announced the firm will leave the subprime, CDO and structured credit businesses. In related news, Merrill Lynch agreed to pay $13.9 million to settle a dispute with the city of Springfield MA over CDOs that sank in value. Merrill said it agreed to reimburse Springfield after finding the city did not expressly consent to the CDO purchase. I'm sure there's more news like that in Merrill's future.
John Mack, CEO of Morgan Stanley, said the firm will stick with proprietary trading, despite trading losses that resulted in a $9.4 billion fourth-quarter writedown. It's a risky strategy for Morgan Stanley, which may face as much as $2 billion in additional writedowns for the current quarter.
Pershing Square manager William Ackman warned that the bond insurance industry might suffer crippling losses and has bet against the insurers' shares. He said MBIA and the Ambac Financial Group might lose $24 billion on the securitized mortgage investments they have guaranteed, a loss that could set off a chain reaction.
Motorola may be divesting the cellular phone business that represents half its revenue. This division has been beset with problems for the better part of a decade. The market actually greeted this news by driving Motorola stock higher; apparently the smaller company is expected to be more profitable.
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