There has been lots of talk about the failures in the subprime market. Many of the smaller lenders are going out of business, large banks are taking losses that they were not expecting, and the market looks bleak. But that is just an opportunity says Merrill Lynch’s Stanley O’Neal. Amoungst the carnage, he see’s the chance to become a market leader.

And now that prices are significantly lower in buying up these assets, Merrill may just be right.

That’s because Merrill is determined to capture a dominant share of trading in bonds backed by home loans, the fastest- growing debt market since 1995 and this year’s most troubled. O’Neal’s enthusiasm for mortgages to potentially delinquent borrowers coincides with the highest default rate in more than six years, a record contraction in demand for so-called subprime loans and descending bond prices.
Merrill already has bankrolled two home lenders that subsequently failed and purchased a third, First Franklin Financial Corp., for $1.3 billion, just before HSBC Holdings Plc disclosed that its bad-loan provisions increased 20 percent because of the unraveling U.S. subprime market.
“You’ve got to remember” that New York-based Bear Stearns, the perennial leader in mortgage bonds with only a quarter of Merrill’s 56,000 headcount, “got into this business at the height of the boom, when you could not lose,” Angelo Mozilo, Countrywide Financial Corp.’s CEO, said in a telephone interview from his office in Calabasas, California.  via Bloomberg.com

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