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25 Oct 2007
US investment bank Merrill Lynch yesterday revealed that it had taken a $7.9bn (£3.5bn) hit from its exposure to sub-prime mortgages and warned that further bad news could be around the corner.
The bank said it had taken a conservative view in its valuations, but said that because valuations in a frozen market were so difficult to calculate, further hits down the line were a possibility.
Accounting rules allow banks to mark sub-prime instruments to model in a frozen market, but such modelling is notoriously complicated and open to error.
US investment banks have taken billions of dollars in write-downs from sub-prime exposures.
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