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Merrill’s losses in fourth quarter balloon to $14b

Write-downs of $21b force world’s largest brokerage to declare worst-ever quarterly hit

NEW YORK – MERRILL Lynch, the world’s largest brokerage, lost nearly S$10 billion (S$14.3 billion) in the fourth quarter, its biggest quarterly loss since it was founded 94 years ago, after reporting US$14.6 billion (S$20.9 billion) in write-downs.

Of the five biggest Wall Street investment banks, Merrill is the third to suffer a loss for the quarter after taking massive write-offs related to securities backed by souring mortgages.

The Merrill report yesterday follows a similar report earlier this week from the nation’s largest bank, Citigroup, which showed that it had also lost almost US$10 billion for the fourth quarter, the largest loss in its 196-year history.

The reports come as weak economic data has intensified fears of a recession and raised pressure on Washington for an economic stimulus plan.

For the quarter, Merrill incurred a net loss after preferred dividends of US$9.91 billion, or US$12.01 per share, compared with a profit of US$2.3 billion, or $2.41 per share, a year earlier.

Wall Street had expected a loss of US$4.93 per share, according to Thomson Financial. However, analysts have not been able to make accurate projections since the summer, when investment banks began taking on large losses due to the collapse of the sub-prime mortgage market.

Merrill shares tumbled by US$2.22, or 4 per cent, to US$52.90 in pre-market electronic trading.

The New York-based brokerage marked down US$11.5 billion for mortgage-backed securities and an additional US$3.1 billion for adjustments to hedge positions on these securities.

‘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,’ noted Mr John Thain, Merrill’s new chairman and chief executive, in a statement.

After joining Merrill last month, he pledged to clear the brokerage’s books and shore up its capital base to better position it in the midst of the credit market turmoil. He replaced Mr Stan O’Neal, who was ousted after big bets on sub-prime mortgages backfired as home owners began to default on loans at an alarming rate.

Mr Thain has begun addressing Merrill’s balance sheet woes by selling a commercial finance unit.

Merrill has also secured almost US$13 billion worth of capital investments, mostly from foreign wealth funds in Singapore, South Korea and Kuwait.

The firm needed the extra capital after steep losses in the second half of last year led to its first annual loss since 1989.

Last year, Merrill suffered a net loss of US$8.05 billion, or US$9.69 cents per share, compared with a profit of US$7.31 billion, or US$7.59 per share, in 2006.

As for the fourth quarter, Merrill noted that its fixed income, currencies and commodities business had experienced markedly reduced client flows and decreased trading opportunities.

The business had also significantly reduced its exposure to collateralised debt obligations, or CDOs, which have given Wall Street the biggest headache.


Source: ASSOCIATED PRESS (The Straits Times 18 Jan 08)

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