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CDO Mess Lines Up Its Next Victim

Written By Brian Hicks

Posted November 10, 2007




CDO Mess Lines Up Its Next Victim

First it was Merrill. Then it was Citigroup. And now it’s Morgan Stanley’s turn to put its cards on the table.

Turns out its pair of deuces also.

Bloomberg on Morgan Stanley today:

"The second-biggest U.S. securities firm by market value after Goldman Sachs Group Inc. said it lost $3.7 billion in the two months through Oct. 31. Prices for securities linked with home loans to risky borrowers sank further than traders expected, cutting fourth-quarter earnings by $2.5 billion, the New York- based bank said. The figure may change by the end of the month.

Merrill Lynch, the third-largest firm, said two weeks ago that it wrote down $8.4 billion of leveraged loans and fixed- income securities while Citigroup, the biggest U.S. bank, said Nov. 4 that its holdings lost as much as $11 billion of their value in October. Colm Kelleher, Morgan Stanley’s chief financial officer, said markets may take three to four quarters to recover instead of the one or two he predicted in September.

“The healing process will take longer,” Kelleher, 50, said in an interview yesterday. “The dislocation in the market has been quite severe, liquidity has dried up.” (Emphasis mine)

The story in the debt markets continues to grow.

This going to make the S& L crisis look like chump change.