Merrill Lynch & Co posted its third straight quarterly loss and will cut about 3,000 jobs after at least $6.5 billion of writedowns and a 40 percent drop in investment-banking fees.

The first-quarter net loss of $1.96 billion, or $2.19 a share, compared with earnings of $2.16 billion, or $2.26, a year earlier, the third-biggest US securities firm by market value said yesterday in a statement. Analysts had predicted a loss of $1.72 billion, based on estimates compiled by Bloomberg.

John Thain spent his first four months as chief executive officer selling more than $12 billion of equity to bolster capital and overhauling risk-management practices after more than $20 billion of credit-market losses. Merrill's stock has fallen 50 percent in the past 12 months, trailing larger New York-based rivals Goldman Sachs Group Inc and Morgan Stanley. Thain said yesterday he expects "more difficult" months ahead.

"The current environment is still tough," said Rose Grant, managing director in the investment-advisory division of Boston-based Eastern Bank Corp, which owns about 66,000 Merrill shares. "People are still reluctant to buy certain types of assets, and I don't think we'll see the end of that until later this year."

The first-quarter writedowns included $2.6 billion to account for the plummeting value of mortgage-related bonds including collateralized debt obligations. Merrill also reduced the value of bond insurance contracts by $3 billion, and lowered the value of leveraged loans by $925 million.

Revenue declines

Moody's Investors Service said yesterday it may cut Merrill's credit rating for the second time in six months, citing "deteriorating conditions in the mortgage market" and the potential for $6 billion of writedowns in addition to those announced in the past three quarters. Last October, Merrill's rating was lowered one level to A1, the fifth-highest of 10 investment-grade ratings.

Merrill's total revenue fell 69 percent to $2.9 billion in the first three months of 2008 from a year earlier.

That included a 7 percent increase to $3.3 billion at the brokerage unit, the world's biggest with a network of 16,660 financial advisers.

Fixed-income trading revenue was negative $3.38 billion and equity-trading revenue was $1.88 billion, down from $2.39 billion a year earlier. Debt underwriting generated $231 million in revenue, down 61 percent, while stock underwriting revenue dropped 45 percent to $199 million.

Investor demands

"Merrill Lynch has to show profitability," said Ken Crawford, senior portfolio manager at Argent Capital Management in St. Louis, which owns about 160,000 Merrill shares. "They can't have negative return-on-equity quarters and expect to make investors happy."

Merrill's first-quarter loss contrasts with earnings at Goldman, Morgan Stanley and Lehman Brothers Holdings Inc. Even Bear Stearns Cos eked out a profit of $115 million. A cash shortage forced Bear Stearns to sell itself last month to JPMorgan Chase & Co for $10 a share. Bear Stearns traded at $158 as recently as last April.

The investment-banking business is grappling with a plunge in fees from advising companies on mergers and stock and bond sales, as CEOs and corporate treasurers hunker down for a recession. Thain also has had to weather the departures of more than a dozen senior executives and traders.

Agencies

(China Daily 04/18/2008 page17)