Merrill Lynch still licking wounds from US subprime foray
NEW YORK (AFP) — US investment bank Merrill Lynch reported its third straight quarter in the red Thursday after another massive write-down on assets from its adventure in the risky US subprime mortgage market.
The Wall Street giant said it recorded a net loss of 1.96 billion dollars for the first quarter of 2008, compared with a net profit of 2.16 billion dollars a year ago, and announced it would slash 10 percent of its workforce.
Earnings per share were 2.19 dollars, sharply higher than analysts' consensus forecast of 1.99 dollars.
It was the third loss-making quarter in a row, after a loss of 9.8 billion dollars in the 2007 fourth quarter and 2.2 billion dollars in the third quarter.
Revenue for the quarter ending March 28 fell to 2.93 billion dollars from last year's 9.6 billion as Merrill wrote down nine billion dollars in assets.
The bank wrote down some 6.6 billion dollars in soured investments related to the US mortgage market and three billion dollars on assets tied to municipal bond insurers.
"Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," John Thain, chairman and chief executive, said in a statement.
"The firm's 82-billion-dollar excess liquidity pool has increased from year-end levels, and we remain well-capitalized," he said.
Merrill is the US bank the hardest hit by a credit squeeze that erupted in August amid rising defaults on US subprime mortgages as a housing boom collapsed. Worldwide, Merrill is the second most impacted bank, after Swiss giant UBS.
Merrill reported a 2007 annual loss of 7.8 billion dollars on writedowns of 11.5 billion dollars.
Most of the rout in Merrill's accounts for the past three quarters came from exposure to the meltdown in the high-risk subprime home-loan sector, where credit was given to customers with weak credit histories.
In contrast to Merrill's first-quarter losses, Wall Street peers Goldman Sachs, JPMorgan Chase, Lehman Brothers and Morgan Stanley announced profits, although on average they were halved.
Even Bear Stearns, which nearly collapsed in early March from the credit crunch and was rescued in a government-funded takeover by JPMorgan, squeaked out a profit of 115 million dollars.
To buffer its pain, Merrill announced Thursday it would lop off 4,000 employees, or 10 percent of its workforce, from year-end 2007 levels.
Most of the job losses would come in the investment banking division and support services. Merrill said it had already shrunk its workforce by some 1,000 jobs in the first quarter, particularly in its Franklin mortgage lending business.
The bank plans to record a 350-million-dollar charge in the second quarter related to the job cuts, which were expected to generate cost savings of 800 million dollars on an annualized basis.
Moody's Investors Services said it was considering downgrading Merrill's long-term credit ratings, citing continued deteriorating conditions in the mortgage market and "increased expected losses" on Merrill's portfolio.
"This was about as difficult a quarter as I've seen in my 30 years on Wall Street," Thain said in 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."
Shares in Merrill Lynch jumped 4.05 percent to close at 46.71 dollars.
