November 2 (LPAC)--Merrill Lynch, the world's largest brokerage firm, was staggered when on Nov. 1 as their financial shares reached the lowest level in two years, after Deutsche Bank AG said write downs for subprime losses for the bank may rise to $10 billion. Also on the mat is the Citi-group, the largest U.S. bank, whose shares declined to a four year low.

The draw down had an immediate effect as well, in the European market, where analysts at CIBC World Markets downgraded Citigroup and Bank of America, the two biggest U.S. banks, on worries about a credit squeeze. CIBC said Citi-group needed to raise 30 billion dollars in capital over the near-term.

But, what got Merrill Lynch's goat, is the news put out by the Wall Street Journal, that, in order to prevent further sliding down of its shares, the Wall Street brokerage giant may have struck a deal with hedge funds. In one such deal, a hedge fund bought $1 billion in commercial papers issued by a Merrill-related entity containing mortgages, a person close to the exchange told the WSJ. In exchange, the hedge fund had the right to sell back the commercial paper to Merrill itself, after one year for a guaranteed minimum return.

While the SEC spokesman John Nestor declined to comment and the Merrill spokespersons stayed away from answering telephones, Merrill, stung by the leak, issued a press release saying: We have no reason to believe that any such inappropriate transactions occurred." Tsk, tsk.