Merrill Lynch saw its stock soar despite posting a worse-than-expected $2 billion quarterly loss as investors appeared optimistic that the worst might be over for the world's biggest brokerage firm.
At Wednesday's close, Merrill Lynch's shares had fallen 16.4 percent year to date, compared with a roughly 25 percent decline in the Amex securities broker-dealer index.
"My sense is, they tried to clean the bad stuff off the shelves, and they hope it's mostly in the trash," said Michael Holland, founder of Holland, which oversees more than $4 billion of assets.
Merrill Lynch Chief Executive John Thain said on a conference call with investors that the three months ended March 31 were "as difficult a quarter as I've seen in my 30 years on Wall Street."
But Thain also implied that Merrill Lynch may post profits in coming quarters, and told a group of reporters that the month of April was generally better than March.
When asked on a conference call whether a comment implied that Merrill Lynch was expecting to be profitable in the quarters ahead, Thain said: "We don't give guidance, but your comment is a very, very reasonable expectation."
Thain also acknowledged that the firm may raise more capital after saying last week that Merrill didn't need to do so. He said that despite the loss, Merrill Lynch remained "well-capitalized" but was open to issuing preferred shares, though not common stock.
Thain, who took the reins of the world's largest brokerage in November, is trying to turn the company around as it struggles with the aftermath of bad bets on subprime mortgages and repackaged debt.
He is increasing the investment bank's business in emerging markets and cutting costs to help offset losses on assets.
"They’re eventually going to be a very strong earnings company again," said Jeffery Harte, managing director of equity research at Sandler O'Neill, on CNBC. "Just in this environment I’m afraid people might have to wait a while to see those revenues kick back up again."
As part of that cost cutting, Merrill said it was cutting head count by 4,000 from year-end 2007 levels; about 1,100 of the reductions took place in the first quarter.
Job cuts will focus on the global markets and investment banking business and support areas, and will not affect retail brokers.
At the end of the first quarter, the company had 63,100 employees.
Job cuts are expected to result in a restructuring charge of about $350 million in the second quarter, and are expected to generate about $800 million of annual cost savings.
Merrill Lynch had already recorded more than $24 billion of write-downs in prior quarters, spurring it to raise over $12 billion of new capital.
Moody's Investors Service said it is reviewing whether Merrill Lynch can improve its capital position amid continued difficult market conditions, and may cut the company's debt ratings.
Moody's estimates Merrill Lynch could face another $6 billion of write-downs in its collateralized debt obligation portfolio.
Merrill Lynch reported losses, write-downs and reserve increases of $1.5 billion on collateralized 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.
That totals about $9.7 billion, but about $3.1 billion of the investment portfolio write-downs will not affect net income, but instead cut into equity on the balance sheet.
A $2.1 billion benefit from widening credit spreads partly offset the write-downs and losses on risky assets.
--Reuters and AP contributed to this report.