I asked the same question so many times that eventually I was called in for a breakfast meeting with David Gu, then global head of rates and FX, and Harry Culham, then head of global FX. The two presented a united front, even though the rumours suggested that Culham was trying to get Gu to write down the portfolio he had inherited when he started at the bank in January 2007. There was no black hole, Gu explained, showing me a nice chart of how much money Merrill was making in FX options, which I was naturally not allowed to report on or take away with me.
The subsequent sudden departure of Harry Culham and his team naturally rekindled my suspicions. But until recently, that was all they remained – suspicions. However, after Bank of America’s takeover of Merrill, word started to filter out again that all was not what it seemed at Merrill. Several strong themes emerged in the rumours. The first was that the bank suffered from institutionalised model arrogance: it believed – as many others have before – that its ability to price instruments was superior to the rest of the market.