Merrill Lynch posts deep quarterly loss; to cut 10 per cent of workforce

17 April 2008

The results season has started, and the figures are, as expected, nothing to crow about. In fact, for one bank that announced its quarterly results on Thursday, they are quite a bit worse from even the gloomiest of estimates. Merrill Lynch & Co., the world's largest brokerage and the third largest US securities firm by market value, announced a net quarterly loss of $1.96 billion after fresh write-downs of $6 billion.

It also said it would cut 4,000 jobs, a figure which represents as much as 10 per cent of its workforce, excluding financial advisers and investment associates. It will focus the reductions in its global markets and investment banking division, and expects to record a restructuring charge of $350 million in the current quarter for the layoffs.

Merrill Lynch reported losses, write-downs and reserve increases of $1.5 billion on collateralised debt obligations, $925 million on loans financing leveraged buyouts, $3.5 billion on an investment portfolio, more than $800 million on residential mortgages, and $3 billion for exposure to bond insurers. This resulted in net revenue of $2.93 billion, a 69 per cent drop from corresponding figures of $9.6 billion a year earlier.

The write-downs caused Merrill Lynch to lose $2.14 billion, or $2.19 per share, after paying preferred dividends, compared to a profit of $2.11 billion, or $2.26 per share, a year earlier. The results were below projections made by analysts, who had consistently reduced their estimates in the recent months.

Only a month ago, analysts were predicting profit of 48 cents per share. At the start of 2008, the consensus estimate was $1.52 per share. Latest estimates had been a $1.99 per share loss on a net loss of $1.4 billion and revenue of $3.7 billion.

A $2.1 billion benefit from widening credit spreads partly offset the write-downs and losses on risky assets.