Merrill's Liability Could Be Huge

The good news is that Spitzer has now dropped the idea of asking the firm to contribute to a restitution fund for investors who lost money as a result of following the excessively bullish stock research recommendations of the firm.

The bad news is that Merrill has lost over $10bn in market valuation since the attorney general's investigation was made public. The shares are currently trading around 1.7 times net worth - tantalisingly cheap for a would-be predator thinking of launching a bid for the firm.

And the worst news may be to come. So far pension funds have stayed on the sidelines and have not entered the fray. But perhaps not for long. There is a train of thought that believes that fund managers and administrators, bound by the terms of the US Employee Retirement Income Security Act of 1974, will be obliged to sue the firm to recoup perceived losses. If this happens, Merrill's liability could run into several billion dollars.