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US state probes broker’s role in sub-prime losses

BOSTON – MASSACHUSETTS said last Friday that it launched an investigation to determine Merrill Lynch’s role in investments linked to sub-prime mortgages made by the city of Springfield that have fallen in value.

Merrill was subpoenaed by Massachusetts regulators after the value of collateralised debt obligations (CDOs) the United States brokerage firm sold to Springfield plunged 91 per cent because of losses tied to sub-prime mortgages.

Secretary of State William Galvin issued the request for information to New York-based Merrill.

Mr Galvin, the state’s top securities regulator, said last Friday he wanted the names and details of the CDOs by 3pm on Jan 10 (4am Singapore time on Jan 11).

Merrill said it will cooperate with the investigation.

US state and local governments, including Florida and Orange County, California, are vulnerable to losses as complex investments once sold as less risky high-yielding instruments are now backed by collateral that no one wants.

The investment is valued at US$1.2 million (S$1.7 million), down from US$14 million a year earlier, according to Mr Galvin.

 

Source: BLOOMBERG NEWS, REUTERS (The Straits Times 7 Jan 08)

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