[Pen-l] Merrill Lynching

[Louis Proyect <lnp3@xxxxxxxxx>]

http://dealbook.blogs.nytimes.com/2008/04/17/merrill-posts-196-billion-loss-in-1st-quarter/index.html

Merrill Reports Big Loss, Plans 4,000 Layoffs
April 17, 2008, 6:53 am

Merrill Lynch said Thursday that it lost $1.96 billion for the first 
quarter this year, as the meltdown in the housing and credit markets 
continued to batter the firm.

Much of that stemmed from more than $9.4 billion in write-downs and 
“credit valuation adjustments” tied to the firm’s holdings in mortgage 
securities and loans meant to finance leveraged buyouts. The firm also 
said it intends to cut 4,000 jobs, or 10 percent of its workforce.

The loss, which amounts to $2.19 a share on revenues of $2.93 billion, 
is a sharp reversal from the $2.16 billion in profit and $9.6 billion in 
revenue it earned in the same time last year. Analysts surveyed by 
Bloomberg News had expected on average a loss of $1.79 a share.

John A. Thain, the firm’s chairman and chief executive, acknowledged 
that the quarter was trying by any measure.

“This has probably been as difficult quarter as I’ve seen in my 30 years 
on Wall Street,” he said on a conference call with investors on Thursday.

Merrill has been one of the firms hardest hit by the economic slump and 
the meltdown in the housing markets, which has stirred up a wave of pain 
for financial insitutitions around the world. The firm has now reported 
$27.4 billion in write-downs for three straight quarters. The firm has 
already had to raise more than $12 billion in fresh capital, including 
from sovereign wealth funds.

Mr. Thain said that the firm is making progress in pulling itself out of 
its mortgage mess. Perhaps most importantly for Merrill, he emphasized 
that the firm has enough capital to meet its obligations, an important 
statement following the run on the bank that took down Bear Stearns. 
(Bear Stearns, however, reported a $110 million profit for its first 
quarter as it prepares to be acquired by JPMorgan Chase.)

“For those of you who like to blog, we do not have any plans to raise 
any additional capital,” Mr. Thain said on the conference call.

Virtually all of the losses were borne on Merrill’s investment-banking 
side, which recorded a net loss of $4 billion atop negative revenues of 
$690 million. The unit reported $1.5 billion in write-downs related to 
collateralized debt obligations, or baskets of the riskiest home loans. 
It also reported $3.1 billion in write-downs tied to Alt-A residential 
mortgages, which are considered slightly less risky than subprime loans.

Merrill also took a $3 billion charge related to the failure of 
guaranties on its mortgage securities provided by bond insurance 
companies. The firm is embroiled in a legal battle with a unit of 
Security Capital Assurance over that company’s efforts to walk away from 
obligations to insure the value of derivatives of those mortgage securities.

Merrill said that it had written down $925 million in leveraged loans, 
those meant to finance private equity deals, as buyers for that debt 
have mostly disappeared. It has now reduced its exposure to about $14 
billion, down from $18 billion at the end of last year.

In one bright spot, the firm touted the $3.6 billion revenues reaped by 
its global wealth management unit, a record for the business. But the 
division reported $720 million in pre-tax earnings, only an 8 percent 
increase over the same time last year as it prepared a loss reserve.

That business saw growth from several areas, including increased 
revenues from Merrill’s stake in BlackRock, the publicly traded money 
management firm. Over all, the global wealth management unit held $1.6 
trillion in client assets at the end of the quarter, virtually unchanged 
from the same time a year ago.
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