Merrill Lynch posts record loss
NEW YORK (AP) - January 17, 2008 The fourth-quarter loss was just short of $10 billion as Merrill
Lynch became the latest Wall Street bank bloodied by the ongoing
credit crisis. Its massive write-offs came largely from the
shrinking value of securities backed by mortgages, which have
soured as borrowers are unable to repay them on time.
Merrill Lynch joins rival Wall Street investment houses Morgan
Stanley and Bear Stearns Cos. in posting losses in the last three
months of fiscal 2007. Citigroup Inc., the nation's largest bank,
reported on Tuesday a quarterly loss of almost $10 billion, the
largest in its 196-year history.
John Thain, the new chief executive at Merrill Lynch, said he
believes this will be the bulk of the company's write-downs from
its subprime mortgage exposure. But he would not speculate about
what 2008 might hold in store in other areas.
The huge housing-driven shortfalls come as weak economic data
have intensified fears of a recession, and have increased pressure
on the government for an economic stimulus plan. There is also
increasing evidence that mortgage delinquencies are spilling over
into credit cards, home equity loans, and other areas.
"I don't think you should anticipate any further problems of
this magnitude," Thain said on a conference call with reporters.
"There would have to be something incredibly bad out there to have
this happen again, and our whole goals is to get 2007 behind us."
The New York-based brokerage marked down $11.5 billion from
mortgage-backed securities, and an additional $3.1 billion in
adjustments to hedge positions on them.
That caused Merrill Lynch to post a net loss after preferred
dividends of $9.91 billion, or $12.01 per share, compared to a
profit of $2.3 billion, or $2.41 per share, a year earlier.
Analysts - who have had a hard time ascertaining just how steep
losses would be for Wall Street banks - had been forecasting a
$4.93 per share loss, according to Thomson Financial.
Merrill Lynch shares tumbled $3.50, or 6.3 percent, to $51.60 in
morning trading. Share prices have fallen almost 50 percent since
their high of $98.68 last year, wiping out some $40 billion in
shareholder value along the way.
After joining Merrill Lynch last month, Thain pledged to clear
the brokerage's books and shore up its capital base to better
position it amid the credit market turmoil. He replaced Stan
O'Neal, who was ousted after the former CEO's strategy on subprime
mortgages backfired as homeowners defaulted on their loans at an
alarming rate.
Thain said some layoffs are planned this year, though they "are
not going to be significant" and will be a "small number" of the
company's 64,200 employees. He also plans to beef up the company's
risk management processes.
While calling the fourth-quarter results "unacceptable," he
said Merrill Lynch has "substantially strengthened the firm's
liquidity and balance sheet" over the past few weeks.
Merrill Lynch secured almost $13 billion worth of fresh capital,
mostly from foreign wealth funds in Singapore, Korea, and Kuwait.
It also addressed the balance-sheet woes by selling a
commercial-finance unit.
The extra capital was needed after steep losses in the second
half of 2007 led to its first annual loss since 1989. The full-year
loss of $8.05 billion, or $9.69 cents per share, compared to a
profit of $7.31 billion, or $7.59 per share, in 2006.
Merrill noted its fixed income, currencies and commodities
businesses had significantly reduced client flows and decreased
trading opportunities in the fourth quarter. The company s also
significantly reduced its exposure to collateralized debt
obligations, or CDOs, that have caused the biggest amount of
problems for Wall Street.
CDO exposure was $4.8 billion at the end of 2007, down from
$15.8 billion three months earlier. For the same periods, exposure
to subprime-residential mortgages fell to $2.71 billion from $5.66
billion.
Investment banking revenue dropped 11 percent from a strong
year-ago period. Equity trading revenue jumped 23 percent amid
"substantial" growth in client volume. The past few quarters have
been good for stock trading due to big swings in major market
indexes, an ideal condition for many trading shops.
But, because of the write-offs, Merrill Lynch posted negative
revenue of $8.19 billion, down from revenue of $8.39 billion a year
earlier.