In trying to fathom the amount of capital that financial firms have destroyed since last summer, I called an acquaintance who used to work at Merrill Lynch. I was trying to get my brain around the big numbers, put the losses into context. Through the second quarter, Merrill wrote down about $50 billion in the credit crisis. That sum wiped out about 4.5 years of the company's earnings (not including the three-straight quarterly losses) — or 86 percent of its book value.

“So, when you think about it,” I said to my friend, “Merrill Lynch basically went bankrupt and recapitalized itself all at the same time — it's just that Merrill did so without having to file Chapter 11.”

“Absolutely,” my former-Merrill friend responded. “They almost brought the firm down. Thank God for Singapore.” (Temasek, the sovereign wealth fund of the government of Singapore, bought $6 billion in common equity in December, and invested nearly $4 billion more in another offering this summer.) It should be noted that my friend had an insider's knowledge about the firm's risk and hedging strategies.

To put it another way, a handful of Merrill executives — who have since been forced out — bet the farm, albeit unwittingly, on collateralized-debt obligations of various kinds. “Well, every firm was pretty levered up,” my friend responded, rather generously, I thought. “It was hard to predict what happened.” Actually, plenty of people were concerned about the CDO machine, and, indeed, Merrill employees were fired a year or more before the crisis began last summer for daring to suggest that Merrill refrain from taking on any more CDOs.

Which is why boring old retail brokerage looks like a wonderful, steady business by comparison. In the first six months of 2008, Merrill's Global Wealth Management unit — which includes its Global Private Client division — netted $1.5 billion pre tax. Compare that to Merrill's Global Markets & Investment Banking division, which bled $12.6 billion in the first half of 2008. For the full year, Merrill could lose more than $16 billion, according to estimates by Brad Hintz, a Sanford C. Bernstein analyst. Yikes. (And there could be more CDO losses, considering Merrill still has $1.6 billion in net CDO exposure. In addition, the CDOs Merrill sold to a hedge fund this summer could, under terms of the deal, come back on its balance sheet at year-end — not likely but conceivable.)

Management, you probably have noticed, has been a little nicer to you. Please turn to page 30 for a summary of what the big, embarrassed brands have been doing to keep you — and your clients — happy.

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