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Staffing Cuts Hit Merrill's CP-Dealer Team
Asset Backed Alert, Harrison Scott Publications Inc. (May 2, 2008)

Merrill Lynch is putting less effort into seeking new assignments to distribute asset-backed commercial paper.

Key evidence of the pullback emerged in the past week, as Merrill eliminated all but one member of its CP origination team - a unit that pitches the battered bank's distribution capabilities to conduit operators worldwide and maintains relationships with those shops. Among those on their way out: Stewart Cutler, who has been leading the group.

Merrill, however, this week hastened to convey that it will remain active in the sector, reaching out to conduit operators that rely on its dealers to place their vehicles' paper.

No one really expects Merrill to retreat from its longtime standing as one of the conduit market's three leading placement agents. But the bank apparently doesn't need so many staffers to drum up new business, since the volume of conduit paper hitting the market has fallen precipitously since mid-2007 and is likely to remain flat for the foreseeable future.

"They certainly have shut down their origination efforts," one source said. "When you reduce the group from four people to one person . . . it's hard to say you're originating mandates."

The overall volume of U.S. asset-backed CP in the hands of investors now stands at $763 billion, according to the Federal Reserve. That's down from a peak of $1.2 trillion last August, when the onset of the credit crisis ended what had been a long-running growth streak for the industry.

Another likely factor in the reduction of Merrill's CP-dealing efforts is the fact that the business tends to produce only narrow profit margins, at a time when the bank is struggling to cut costs following massive losses on other structured-finance activities. Nonetheless, "I think it's a little short-sighted," one conduit operator said, predicting that issuance will eventually recover from its current funk.

Some clients also said they aren't convinced that Merrill plans to remain as active in the CP-distribution business as it has been, given its staffing cutbacks and the pressures on its structured-finance division. The bank's strategy could ultimately create opportunities for Citigroup and Lehman Brothers, which are its top rivals in the area.

Cutler had been steering the CP-origination effort at Merrill since the bank lured him away from a similar post at Lehman 12 years ago. He will leave Merrill at the end of June, after accepting an early-retirement package that the institution offered to employees as it began carrying out the most recent in a series of mass layoffs.

Cutler's chief lieutenants, vice president Matt Pacello and director Barbara Ross, also fell victim to the "reduction in force." Pacello, who was stationed in Merrill's New York headquarters, joined Cutler's team from another area of the bank six years ago. Ross, who was based in London, led the European side of Cutler's unit even longer.

Elsewhere, Scott Soltas, a securitization veteran who runs a mortgage-securitization business at Merrill, accepted a buyout offer.

The individuals are among 4,000 employees Merrill is cutting from its capital-markets division after increasing its tally of credit-crunch-related writedowns by $6.7 billion last month, to $31.8 billion. And that's on top of thousands of layoffs it has already carried out.

Along with the staff reductions, chief executive John Thain is overhauling the bank's management to focus more on broker-dealer operations, which should include the CP-placement business.

The conduit-origination group is now part of a new unit that handles all originations of money-market products. Managing director Rob Little has been promoted to lead the broader division, following a lengthy term atop an origination group that focuses on unsecured corporate commercial paper.

Under him, New York-based vice president Stephany Bushweller is the only member of Cutler's team slated to stay on board. Cutler and Little report to Wylie Collins, Merrill's capital-markets chief in the U.S., South America and the surrounding regions.



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