Merrill posts loss of nearly $10 billion
Merrill Lynch & Co. on Thursday became the second large Wall Street firm in three days to report a nearly $10-billion fourth-quarter net loss caused by the sub-prime mortgage downturn.
The brokerage reported a loss of $9.8 billion, or $12.01 a share, contrasted with a profit of $2.3 billion, or $2.41, a year earlier.
The deficit resulted from a $16.7-billion write-down of the value of assets on Merrill’s books, primarily mortgage-related securities. It followed a similar $7.9-billion write-down taken by the securities giant in the third quarter.
Merrill’s loss was nearly identical in size to a $9.8-billion loss that Citigroup Inc. reported Tuesday and was much larger than analysts had expected. Merrill’s stock sank $5.64, or 10%, to $49.45.
“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,” said John Thain, Merrill’s new chairman and chief executive.
The latest write-down included a $3.1-billion hit taken to reflect the possibility that a bond insurer might not be able to pay off on insurance-like hedges that Merrill had entered into to reduce its exposure to sub-prime risk.
Merrill said it took the action because the credit rating of the insurer, ACA Capital Holdings Inc., had been slashed to junk levels.
Bond insurers, which have long guaranteed payments on municipal bonds and other debt in the rare event that issuers defaulted on the securities, have broadened their scope in recent years to insure sub-prime-backed bonds.
As delinquencies on sub-prime mortgages have surged, fears have mounted that the insurers won’t have the money to pay off everyone, ushering in another round of severe sub-prime losses on Wall Street and elsewhere.
Merrill said Tuesday that it had raised $6.6 billion to bolster its capital base. Combined with an earlier sale of stock, Merrill has taken in $12.8 billion in fresh capital.
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