Merrill Lynch Posts $9.9 Billion Quarterly Loss

Merrill Lynch & Co., the world's largest brokerage, lost nearly $10 billion in the last three months of 2007, its biggest quarterly loss since it was founded 94 years ago, after writing down $14.6 billion of investments slammed by the ongoing credit crisis.

Merrill became the third of the five biggest Wall Street investment banks to post a loss for the quarter after taking massive write-offs related to the shrinking value of securities backed by mortgages that have soured as borrowers have been unable to make payments on time.

The Merrill loss reported today slightly exceeded the deficit posted for the same quarter earlier in the week by the nation's largest bank, Citigroup Inc., the largest deficit in its 196-year history.

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.

Merrill Lynch posted a net loss after preferred dividends of $9.91 billion, or $12.01 a share, compared to a profit of $2.3 billion, or $2.41 a share, a year earlier.

Wall Street analysts had been forecasting a loss of $4.93 a share, according to Thomson Financial. However, they have not been able to make accurate projections since the summer, when investment banks began taking large write-downs and boosting reserves due to the collapse of the subprime mortgage market.

Merrill shares tumbled $1.84, or 3.3%, to $53.25 in premarket electronic trading.

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.

"While the firm's earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet," Merrill's new chairman and chief executive, John Thain, said in a statement.

Merrill Lynch secured almost $13 billion worth of fresh capital, mostly from foreign wealth funds in Singapore, Korea, and Kuwait. Mr. Thain also addressed the balance-sheet woes by selling a commercial-finance unit.

After joining Merrill Lynch last month, Mr. 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 big bets on subprime mortgages backfired as homeowners began to default on their loans at an alarming rate.

Merrill needed the extra capital 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 a share, compared to a profit of $7.31 billion, or $7.59 a 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 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% from a strong year-ago period. Equity trading revenue jumped 23% 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.