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Financial markets. A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). [1] Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS). [2][3] Like other private label securities backed by assets, a CDO can be thought ...
Merrill Lynch & Co., formally Merrill Lynch, Pierce, Fenner & Smith Incorporated, was a publicly-traded American investment bank that existed independently from 1914 until January 2009 before being acquired by Bank of America and rolled into BofA Securities. The firm engaged in prime brokerage and broker-dealer activities and was headquartered ...
The company was founded on January 6, 1914, when Charles E. Merrill opened Charles E. Merrill & Co. for business at 7 Wall Street in New York City. [11] A few months later, Merrill's friend, Edmund C. Lynch, joined him, and in 1915 the name was officially changed to Merrill, Lynch & Co. [12] At that time, the firm's name included a comma between Merrill and Lynch, which was dropped in 1938. [13]
Rating agencies lowered the credit ratings on $1.9 trillion in mortgage backed securities from the third fiscal quarter (1 July—30 September) of 2007 to the second quarter (1 April–30 June) of 2008. One institution, Merrill Lynch, sold more than $30 billion of collateralized debt obligations for 22 cents on the dollar in late July 2008.
CDOs are viewed as complex and opaque financial instruments. An example of a synthetic CDO is Abacus 2007-AC1, which is the subject of the civil suit for fraud brought by the SEC against Goldman Sachs in April 2010. [33] Abacus is a synthetic CDO consisting of credit default swaps referencing a variety of mortgage-backed securities.
In the Deutsche Bank case study, the Report focuses on the bank's top CDO trader, Greg Lippmann. He warned colleagues that the RMBS and CDO securities were "crap" and "pigs" and could make money taking shorts against them. He predicted the securities would lose value and called the financial industry's CDO operation as a "ponzi scheme."
The list of reference securities making up a portfolio is one of the primary drivers of the investment outcome of a synthetic CDO. [2] Because the portfolio is not that of a corporate credit index like the CDX or iTraxx, the mean default probabilities of the reference securities, their distribution of default probabilities, their default correlations and the recovery amounts upon default can ...
CDO-Squared is a collateralized debt obligation backed primarily by the tranches issued by other CDOs. [ 1] These instruments became popular before the financial crisis of 2007–08. There were 36 CDO-Squared deals made in 2005, 48 in 2006 and 41 in 2007. Merrill Lynch was a big producer, creating and selling 11 of them.