Merrill swings to loss on huge mortgage hit

“In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated,” Stan O’Neal, chairman and CEO said in a press release. The company reported a loss of $2.24 billion, or $2.82 a share, compared with a year-earlier profit of $3.05 billion, or $3.17 a share. Earnings from continuing operations were $2.85 a share. The New York securities firm said total revenue dropped to $577 million from $9.83 billion. On average, analysts polled by Thomson Financial expected a loss of 45 cents a share on revenue of $3.25 billion. Analyst estimates typically exclude items.

On October 5, Merrill Lynch had said it expected to write down about $4.5 billion of subprime and CDO assets. O’Neal said conditions in the subprime market remain, “uncertain.” Merrill also said it took a write-down, after fees, of $463 million for loans to firms doing leveraged buyouts. It said it still had $31 billion of similar loan commitments on its books at the end of the quarter. Merrill said that despite the horrific quarter, its liquidity position remains strong while it attempts to resolve its remaining subprime positions. It said at the end of the quarter it still has about $15.2 billion of CDO exposure and about $5.7 billion of subprime exposure. Merrill shares fell 3.2% in pre-market trading Wednesday. (marketwatch)