Merrill Posts $2 Billion Loss And Plans 4,000 Job Cuts


Merrill Lynch posted a nearly $2 billion first-quarter loss and said it plans to cut 4,000 jobs after suffering several billion dollars of write-downs for subprime mortgages and other risky assets.


The job cuts cover about 10 percent of staff at the world's largest brokerage, excluding financial advisers and investment associates. Merrill Lynch said the job cuts will be targeted in markets and investment banking operations and in support areas.

The company said it ended March with 63,100 employees overall.

Merrill Lynch's quarterly net loss was $1.96 billion, and compared with a profit of $2.16 billion a year earlier.

  • CNBC Interview: Sandler O'Neill's Jeffery Harte analyzes Merrill's numbers (4 mins, 32 secs)

Including preferred stock dividends, the loss was $2.14 billion, or $2.19 per share, and compared with a profit of $2.11 billion, or $2.26, a year earlier.

The loss from continuing operations was $2.20 per share. On that basis, analysts on average expected a loss of $1.96 per share, according to Reuters Estimates.

Net revenue declined 69 percent to $2.93 billion. Analysts expected revenue of $3.35 billion.

Chief Executive John Thain said that despite the loss, Merrill Lynch remains "well-capitalized.''

Moody's May Cut Merrill's Rating

However, in the wake of these results, Moody's Investor Service said it may cut its long-term A1 rating on investment bank Merrill Lynch, citing deteriorating conditions in the mortgage market and more expected losses.

"The review is in response to continued deterioratingconditions in the mortgage market and the increased expectedlosses on MER's portfolio of super-senior CDO's and relatedguarantor hedges as measured in Moody's stress tests," Moody's said in a press release.

Merrill Lynch had already recorded more than $24 billion of writedowns in prior quarters. These spurred it to raise more than $12 billion of new capital. Thain said this month he did not expect to raise more capital in the foreseeable future.

Earnings Recap

Markdowns on those positions and additions to counterparty credit reserves were a major contributor to the first quarter loss, the rating agency said. Moody's had previously expected Merrill Lynch to be profitable throughout 2008. The rating agency forecast potential further markdowns of approximately $6 billion beyond the charges recognized by Merrill Lynch in the past three quarters.

Merrill's latest results reflected a $1.5 billion writedown related to collateralized debt obligations tied to asset-backed securities, and a $3 billion writedown linked mainly to so-called "super-senior'' CDOs tied to asset-backed securities.

Merrill Lynch said it also suffered writedowns tied to corporate loans for leveraged buyouts, and to residential mortgages.

The losses were offset by a $2.1 billion benefit related to widening credit spreads.

"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, Senior Vice-President at Moody's in a release.

Moody's affirmed its Prime-1 short-term rating on Merrill, however, saying that the bank had a strong liquidity profile.

Fitch Ratings meanwhile affirmed Merrill Lynch's A+ issuer default rating but retained its negative outlook due to concerns over earnings, risk management and liquidity leverage. A negative outlook means a downgrade is more likely.

Merrill Lynch's shares were down 16.4 percent between the end of 2007 and Wednesday's close, compared with a roughly 25 percent decline for the broker-dealer sector as measured by the Amex securities broker-dealer index.