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UPDATE: Merrill Posts 1Q Loss On $9 Billion In Write-Downs


Merrill Lynch & Co. (MER) posted its third-straight quarterly loss as the brokerage recorded another $9 billion in write-downs on mortgage-related assets, leveraged loans and hedges.

The company reported a net loss of $1.96 billion, or $2.19 a share, compared with year-earlier net income of $2.16 billion, or $2.26 a share.

The latest results included $1.5 billion in write-downs on collateralized debt obligations, much lower than the past two quarters, $3.5 billion in pretax write-downs primarily related to Alt-A residential mortgage-backed securities, a $925 million write-down on leveraged loans and a $3 billion loss on hedges with financial guarantors.

Merrill last month sued a unit of bond insurer Security Capital Assurance Ltd. (SCA), contending the unit is attempting to avoid financial obligations to insure as much as $3.1 billion in seven swaps, or contracts in which one party insures another against the risk of losses.

Write-down estimates had ranged upwards of $8 billion.

Revenue, which includes the write-downs, tumbled 90% to $825 million. Excluding items, Merrill said revenue would have dropped 26% to $7.4 billion.

The mean estimates of analysts surveyed by Thomson Financial were for a loss of $1.99 a share on revenue of $3.7 billion.

"Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment," said Chairman and Chief Executive John A. Thain.

Merrill recorded $25 billion in write-downs in the second half of 2007, including $22.5 billion on subprime-related products. As such, the company raised $12.8 billion in capital from a number of investors, including three sovereign wealth funds, to shore up its balance sheet.

As for the quarter, Merrill noted its fixed income, currencies and commodities business - source of the write-downs - saw record revenue on interest-rate products and currencies, but revenue fell in the segment’s other operations.

Merrill’s investment-banking net revenue slumped 40% amid strong year-earlier results and lower leveraged-financed and initial-public-offering activity in the latest quarter. Equity-trading net revenue dropped 21% amid weakness in principal-related businesses.

The company’s global wealth management unit, which includes the company’s retail brokerage and its 49% stake in BlackRock Inc. (BLK), saw pretax earnings dip 8% as revenue grew 8% to a record $3.6 billion.

U.S. CDO exposure rose to $6.7 billion as of March 31 from $5.1 billion as of Dec. 31 due as hedging reductions more than offset write-downs.For the same periods, exposure to subprime-residential mortgages was roughly halved to $1.4 billion.

Shares of Merrill closed Wednesday at $44.89 and dipped in premarket trading to $44.52.

-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136;


(END) Dow Jones Newswires

April 17, 2008 07:14 ET (11:14 GMT)

Copyright (c) 2008 Dow Jones & Company, Inc.

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