MER Q3 asset quality analysis

CDO and Securitization --$4.5 bil net write down --VIE max loss exposure $8 bil --Securitization --a.seuritized around $128 bil asset, RMortgage 70% securitization revenue --b.Retained interest $10.3 bil Q3 2007 vs $6.8 bil Q4 06. --c.SPE credit quality is 4% default rate for mortgages --market says full year 2006 and year to date 2007, Merrill issued $53.5 bil CDO/CLO in 06 and 42.6 bil in 07, Citi is next $31.8 --analyze, max loss vs actual write down, total exposure Loan Commitments --write-down of $967 mil gross loss, related to all corproate and financial sponsor, non-investment grade lending commitments. These commitments totaled $31 Q3 07 ves $53 bil Q2 07. --gross loss 3.1% relative to loan commitments, less than other brokers (avg 5% according to creditsights) --nearly $200 bil, where non-investment grade $25.5 bil --use LCDX as a proxy for asset quality...LCDX was fiarly stable, -1% for December