Question

By 2008 it is possible that no management action could have saved Merrill Lynch. Had you...

By 2008 it is possible that no management action could have saved Merrill Lynch. Had you been CEO of the firm in early 2006, which of the following are changes you would consider to help improve the financial performance of the firm?

Note on hindsight: you are allowed to "peek", that is, assume you could have known then what you know now.

(Pick all answers you think correct)

Cut share repurchases

Increase dividend payments

Start selling off CDOs sooner

Try to reduce long term borrowing

Invest in more CDOs

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Answer #1

Merill Lynch was one of the firm which could not escape the collapse of the housing sector in 2008 global financial meltdown. It is cited that firm's investment in CDO's were primary cause of the losses and collapse.

If I were to peek look into 2006, I would have sold the CDO's sooner and exited the business completely before meeting the fate of collapse and losses. Merill Lynch lost between 2007-2008, appx. 52 billion USD in losses from its investment in CDO's. Further, I would have reduced the share repurchases and created a buffer or provision against the losses and maintained sufficient cash reserve to meet the financial meltdown of 2008. In 2006, Merill Lynch had announced share repurchase of 6 billion dollar which drained the company of much needed cash reserves.

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