Merrill Lynch & Co. (MER) reported its fifth-straight quarterly loss, showing how deeply the investment bank was hurting when it agreed to be bought by Bank of America Corp. (BAC) last month.
The company, set to be acquired in February, posted a wider third-quarter loss and another $9.5 billion in write-downs of troubled assets.
Nelson Chai, Merrill's chief financial officer, said during a conference call Thursday that disruptions caused by the bankruptcy of Lehman Brothers (LEHMQ) were "certainly a big driver of the numbers that we disclosed today," although he declined to reveal Merrill's exact exposure.
Merrill's net loss of $5.15 billion would have been worse without a $4.3 billion pretax gain on the sale of its stake in Bloomberg LP, and a gain of $2.8 billion under mark-to-market accounting rules from the deteriorating market value of its own debt.
Merrill, the world's largest brokerage firm by number of brokers, has already had been clobbered by some $40 billion in subprime-related write-downs. It said it has made "significant progress in balance-sheet and risk reduction," having cut 98% of its exposures to U.S. Alt-A mortgages.
As expected, Merrill took a net $5.7 billion hit from a sale of troubled collateralized debt obligations in July at 22 cents on the dollar. That CDO sale was part of an effort by the company to "lance the boil" of troubled assets, but the effort failed to keep the company independent.
Merrill said it cut another 5% of its work force during the quarter and recorded another $39 million in charges for job cuts in the third quarter, primarily in technology, on top of $445 million in charges already recorded in the second quarter.
Chief Executive John Thain - who will stay at Bank of America following the merger as president of the combined company's global banking, securities and wealth-management business - said Merrill is continuing "to reduce exposures and de-leverage the balance sheet prior to the closing of the Bank of America deal."
Shares of Merrill recently fell 77 cents, or 4.1%, to $17.50.
Merrill's loss was $5.58 a share, compared with a prior-yet net loss of $2.24 billion, or $2.82 a share.