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In just one week from the end of October to the beginning of November, Citi and Merrill Lynch released terrible quarterly reports, with Citi's subprime mortgage-related assets written down by about $10 billion and Merrill Lynch's assets written down by $9.4 billion. Pen | fun | pavilion www. ｂｉｑｕｇｅ。 From the initial impact on Wall Street's peripheral institutions such as New Century Corporation, to the "military and division-level units" such as hedge funds that hit the shadow banking system during the summer storm, and then to the collapse of the core "group army" large banks on Wall Street, the subprime mortgage problem has evolved into a full-blown financial crisis.

It's no coincidence that Citi and Merrill Lynch had problems in the first place. Let's start with Citi, the world's largest banking group with businesses in commercial banking, investment banking, asset management, insurance and other fields, and is a typical "financialsupermarket" bank. Compared with pure investment banks such as Goldman Sachs, Citi's strengths are a wide range of business and a large amount of capital, which determine Citi's great advantages in asset securitization and proprietary investment. Citi's extensive business provides Citi with the "raw materials" for the production of structured bonds, such as housing loans, credit card bonds, and bank credit, while the huge capital ensures the capital turnover of the assembly line. Citi took advantage of its advantages to vigorously develop the asset securitization business, which was a good move, but it spread too much and directly invested in structured bonds such as CDOs, which finally planted the root cause. As soon as the subprime mortgage problem came out, Citi was beaten up: the $43 billion of subprime mortgage CDOs directly invested on its books and the $12 billion of subprime mortgage raw materials used to package the bond assembly line were all smashed in its hands, and it could only be written down significantly.

As a pure investment bank, it has traditionally not been involved in the lending business of commercial banks, and lacks the raw materials to produce structured products. However, Merrill Lynch's management made a big trick, coveting the huge profits of asset securitization, and came up with a "clever plan" to directly acquire subprime loan companies: Let these subsidiaries not sell subprime mortgages to other companies, but send them directly to Merrill Lynch's assembly line, and the problem of raw materials would be solved? Until September 2006, when the subprime mortgage problem had already emerged, Merrill Lynch also acquired First Franklin, which is mainly engaged in subprime mortgage business, at a high price of $1.3 billion. Like Citi, Merrill Lynch quickly posted large subprime mortgage-related losses on both packaged raw materials and direct investments. If there are "objective reasons" for Citi's problem, Merrill Lynch is purely self-inflicted, exactly: the agency is too clever to calculate Qingqing's life.