MERRILL Lynch & Co reported a second straight quarterly loss after writing down US$11.5 billion of subprime mortgages and bonds, ousting its chief executive officer and losing almost half of its market value in 2007.
The fourth-quarter net loss of US$9.83 billion, or US$12.01 a share, compared with earnings of US$2.35 billion, or US$2.41, a year earlier, New York-based Merrill said yesterday in a statement. Analysts were estimating the largest United States brokerage would post a loss of US$4.82 a share, according to a survey by Bloomberg News. The decline resulted in Merrill's first full-year loss since 1989.
"While the firm's earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet," Chief Executive Officer John Thain said in the statement. Thain joined Merrill last month, replacing Stan O'Neal, whose gamble on building the subprime mortgage business backfired as US homeowner defaults surged to a 20-year high.
Merrill is the third of the five biggest securities firms to post a loss, capping the companies' worst quarter ever. Thain, the former president of Goldman Sachs Group Inc, Wall Street's most profitable firm, has replaced senior executives and taken steps to replenish capital during the past month by raising US$12 billion from outside investors.
"Thain is repositioning the firm to start fresh with a strong balance sheet, once these couple of bad quarters get out of the way," said Matthew Albrecht, an analyst at Standard & Poor's in New York.
The company's full-year loss was US$7.78 billion compared with record net income of US$11.6 billion at Goldman, the biggest US securities firm by market value, and earnings of US$3.2 billion posted by Morgan Stanley, the industry's No. 2 firm. Morgan Stanley and Bear Stearns Cos, like Merrill, reported their biggest losses in the fourth quarter. Goldman and Lehman Brothers Holdings Inc had profits. All the firms are based in New York.
Thain has reduced 2007 bonuses in some divisions and cut jobs in the fixed-income unit, where the writedowns originated.
Several executives tied to O'Neal have departed, including former US brokerage chief McIntyre "Mac" Gardner. Thain also has recruited executives from his most-recent employer, NYSE Euronext, hiring Nelson Chai to replace Jeff Edwards as chief financial officer.
Merrill, the third-biggest US securities firm, fell 42 percent last year in NYSE trading, the third-worst performance among the 12 stocks tracked by the Amex Securities Broker/Dealer Index. Goldman, which profited by betting on a decline in prices for mortgage securities, gained 7.9 percent in the same period.
Merrill, whose market value was greater than Goldman as recently as 2006, is now worth half as much. Thain, 52, worked at Goldman from 1979 to 2004, when he left the investment bank to become the first CEO of NYSE Euronext.