Merrill Lynch startles market with end-of-day news on losses

Merrill Lynch waited until trading had closed in New York yesterday to announce quarterly losses of $4.7 billion, including $9.1 billion writedowns on its structured product, monoline and mortgage exposures.

The bank reported losses of $3.5 billion on holdings of super-senior collateralised debt obligations of asset-backed securities (CDO of ABS), $2.9 billion on its hedges with financial guarantors, a $1.7 billion writedown on its US investment portfolio and $1.3 billion on exposure to residential mortgages. Restructuring cost it another $445 million in the quarter.

Earlier this week, the bank revealed it would sell its 20% stake in financial information provider Bloomberg back to Bloomberg for $4.4 billion; the sale was funded by a loan by Merrill Lynch to Bloomberg, effectively swapping Bloomberg equity for Bloomberg debt. It also plans to sell a controlling stake in its Financial Data Services subsidiary, valued at $3.5 billion, and has signed a non-binding letter of intent on the sale.

The losses were significantly worse than most analysts expected - a poll of analysts earlier this week produced a consensus forecast of $1.94 loss per share, while yesterday's news was of a loss of $4.46 per share.

Since the start of the financial crisis, Merrill Lynch has replaced its chief executive and chief financial officer, but has yet to show signs of recovery - these latest losses are deeper even than the third-quarter writedown of $7.9 billion that forced the retirement of former chief executive Stan O'Neal in October last year.

The asset sales, chief executive John Thain said, were intended to offset the losses. "In each quarter so far we have replaced the capital we have lost," he said, citing its $6.6 billion stock issue in January this year. However, he ruled out selling the bank's 49% stake in fund manager BlackRock, valued at $13 billion, which he said was "strategic".

See also: Merrill Lynch names new CFO  
Banks reveal further subprime wounds 
Merrill brings Thain to helm  
O'Neal 'retires' as Merrill CEO after $8 billion writedown
Morgan Stanley and Merrill Lynch reveal billions more subprime damage