Merrill Lynch & Co issued its latest assessment of the damage it has suffered from the credit crisis on Thursday — its fourth straight quarterly loss and write-downs from failed investments approaching US$40 billion.
The world’s biggest brokerage announced a larger-than-expected US$4.89 billion second-quarter loss and said it was selling assets — its stake in media company Bloomberg LP for US$4.4 billion and its Financial Data Services Inc subsidiary for US$3.5 billion.
After Wells Fargo & Co and JPMorgan Chase & Co announced stronger-than-expected earnings this week, Merrill’s results served as a reminder that the credit crisis is not fading. Global banks and brokerages have been forced to take some US$300 billion of write-downs in the past year, an amount that some believe could grow to US$1 trillion before the turmoil has passed.
“This was a difficult and disappointing quarter in terms of the bottom line,” chief executive John Thain told analysts on a conference call.
Merrill’s quarterly loss came to US$4.97 per share, after accounting for the payment of dividends for the three months ended June 30. That compares to a year-ago profit of US$2.01 billion, or US$2.24 per share. The broker reported negative revenue of US$2.11 billion versus revenue of US$9.46 billion a year earlier.
Merrill, which had already taken US$29 billion of write-downs, racked up a sizable amount in the latest quarter. The brokerage took US$9.4 billion of charges and write-downs from mortgage-backed securities, unprofitable hedge positions and residential mortgage exposure.
The company reported US$3.5 billion of losses from its exposure to collateralized debt obligations, which are financial instruments tied to mortgages. In addition, it lost US$2.9 billion from wrong-way hedges it bought from bond insurers.
It also took another US$1.7 billion in losses from its investment portfolio of its US banks, and US$1.3 billion in write-downs from exposure to residential mortgages.
Though the firm’s core business held up better than expected, revenue from banking, trading and wealth management fell 21 percent from a year earlier. Merrill’s report was clearly disappointing to investors. The stock, which closed up 9.8 percent at US$20.73 in regular trading, plunged in after-hours trading after the results were announced.
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