Merrill Lynch & Co. Inc. posted its third quarterly loss in a row Thursday and said it would cut another 4,000 jobs, as damage from a poorly managed plunge into risky credit market activities under its previous chief executive continued to hurt U.S. brokers.
The loss of $1.96 billion, or $2.19 a share, was driven by $6.6 billion of writedowns related to mortgages, collateralized debt obligations, and loans made to junk-rated companies. It wrote down another $3.1 billion of mortgage-related securities held at its U.S. banks, though that hit, for accounting reasons, showed up only on its balance sheet.
Merrill has reported about $14 billion of losses over the past nine months, more than it earned in all of 2005 and 2006. The losses forced E. Stanley O'Neal to step down as its CEO last year and raised tensions within Merrill's brokerage unit, which felt it was suffering unfairly because of bad bets by the company's traders.
The job-cutting plan reflects that split. None of the cuts will affect Merrill's 16,660 financial advisers or their support staff. Instead, they will be targeted at the capital markets and trading side of the company. Merrill cut 1,100 jobs last quarter as it reduced mortgage lending and sold a finance unit. Its has 63,100 employees.
First-quarter revenue fell 69% from a year earlier, to $2.93 billion.
The results were worse than Wall Street had expected. Moody's Investors Service Inc., which had expected Merrill to be profitable throughout the year, responded to the report with a warning that it could downgrade the company's credit rating, and that Merrill could be forced to take another $6 billion of writedowns.
"Management at Merrill Lynch is focusing on the right issues for the rating — liquidity, capital, and de-risking the balance sheet. However, the mortgage market is not cooperating," said Peter Nerby, a senior vice president at Moody's.
Merrill's results reflected $1.5 billion of writedowns on CDOs, bringing the total over three quarters to more than $18 billion on those securities alone. The company also took a $925 million writedown on leveraged loans and a $3 billion loss on hedges with financial guarantors.
Despite the writedowns, Merrill's CDO exposure rose 31.37% from a quarter earlier, to $6.7 billion as of March 31, as hedges failed. Exposure to subprime residential mortgages was roughly halved, to $1.4 billion.
Merrill recorded $25 billion of writedowns in the second half of last year, which forced it to raise $12.8 billion of capital from a number of investors, including three sovereign wealth funds.
The company said its fixed income, currencies, and commodities business, the source of the writedowns, generated record first-quarter revenue on interest rate products and currencies.
Investment banking revenue slumped 40% from a year earlier, because of a decrease in leveraged financing activity and initial public offerings. Revenue from equity trading dropped 21%.
