On average, analysts polled by Thomson Reuters were expecting a loss of $5.22 a share on $760 million in revenue.
The company recorded negative revenue of $1.17 billion, compared with negative revenue of $1.93 billion a year earlier. The negative figures were due to the write-downs.
Merrill wrote down $3.8 billion in real-estate related assets, and investments in Fannie Mae (FNM), Freddie Mac (FRE), and broker-dealers. Thain said the unwinding process of Lehman has been "significantly more extensive than anybody would have thought."
Merrill also took a hit from a $2.5 billion payment to Singapore's Temasek Holdings (TEMAH.YY) when Merrill raised new capital in July. Temasek, an earlier investor in Merrill, had negotiated to be compensated if Merrill raised more capital in a subsequent dilutive offering.
Merrill also had a $425 million expense for buying back auction-rate securities.
Merrill's global wealth management unit, which houses its brokerage operations and its 49% stake in BlackRock Inc. (BLK), held up better than other units, but still posted a 9% decline in net revenue from the year-earlier period, to $3.2 billion. Earnings fell 18%.
The firm hired 160 financial advisors during the quarter. Since the Bank of America deal was announced, financial advisors have expressed growing interest in joining Merrill, the company said.
The investment-banking business posted a pretax loss of $6 billion and recorded negative revenue amid the write-downs.
Merrill said its deposits decreased by 10% from June 30, an indication that customers were concerned about the firm's stability.
Merrill now brings its problems to Bank of America, which already had been dealing with some of its own troubles including those from its takeover of mortgage lender Countrywide Financial earlier this year. In addition, Bank of America also must grapple with how to increase profits at the investment bank in a world that no longer tolerates high leverage.