Merrill Lynch posts steep first-quarter loss
NEW YORK (AP) - April 17, 2008 It marks the third straight quarterly loss for Merrill amid a
global credit crisis that began last summer. Banks and brokerages
have racked up nearly $200 billion of write-downs to date, with
more feared to come.
John Thain, hired as chief executive four months ago to clean up
the firm's books, cautioned that things were unlikely to improve in
the next couple quarters. The New York-based brokerage lost about
$2 billion during the most recent quarter, and has now written off
about $29 billion worth of risky asset-backed securities and
leveraged loans.
"This was about as difficult a quarter as I've seen in my 30
years on Wall Street," Thain told analysts during a conference
call. "We are planning for a slower and more difficult next couple
of months and probably next couple of quarters, but are also
hopeful for our full year 2008 results."
His comments echo those of rival investment banking chiefs, who
in recent days have said the worst of the crisis is over - but that
a resurgence might not happen until the second half of the year.
Thain also said that April is so far shaping up to be a better
month for the brokerage compared to previous months.
Merrill Lynch lost $2.14 billion, or $2.19 per share, after
paying preferred dividends, during the first quarter. This was well
below the profit of $2.11 billion, or $2.26 per share, a year
earlier. Total revenue fell to $2.93 billion from $9.6 billion a
year earlier.
Results missed Wall Street projections for a loss of $1.99 per
share on $3.7 billion of revenue, according to analysts polled by
Thomson Financial.
"Merrill Lynch's and other investment banks' write downs are a
stark reminder that we are not out of the woods yet in terms of the
credit crisis," said Octavio Marenzi, head of financial
consultancy Celent LP. "There is more pain to come and pressures
on earnings are going to continue."
The results caused Moody's Investors Service to say it may trim
Merrill Lynch's ratings for the second time in six months. The
rating agency cited "deteriorating conditions in the mortgage
market" and the latest write-downs.
Merrill Lynch's plan to trim its ranks of 63,000 employees comes
after it recently cut 1,000 jobs, mostly from subprime mortgage
division First Franklin. The latest round of cuts will leave
Merrill's army of 16,000 brokers and financial advisers - arguably
the most powerful group within the company's ranks - unscathed.
By comparison, Bear Stearns eliminated about 2,000 jobs - mostly
from its mortgage operations - since last year. JPMorgan Chase &
Co., currently in the midst of acquiring Bear Stearns, is said to
be considering cutting thousands more from the investment bank's
total 14,000 employees.
Merrill said it will record a restructuring charge of $350
million in the current quarter for the layoffs. However, it will
generate some $800 million of cost savings each year.
Thain also told reporters that although the investment bank does
not plan to issue common stock to boost capital, it is open to
issuing preferred shares - a move that would not be harmful to
investors. Merrill Lynch raised $12 billion since the credit crisis
began to boost its balance sheet.
"We've shored up our balance sheet and liquidity positions from
the fourth quarter," he said. "There's tremendous flexibility in
a difficult market environment."