Merrill Lynch on Thursday posted a quarterly loss of $2 billion and said it planned to cut 2,900 more jobs after recording more than $6.5 billion in write-downs on subprime mortgages and other risky assets.
The results were worse than Wall Street analysts' gloomy expectations, but Merrill Lynch's shares rose amid hopes that the company was working through its problems and closer to seeing improvement.
"My sense is, they tried to clean the bad stuff off the shelves, and they hope it's mostly in the trash," said Michael Holland, founder of Holland & Co, which oversees more than $4 billion of assets.
Merrill Lynch's first-quarter net loss to common shareholders was $2.14 billion, or $2.19 per share, compared with a profit of $2.11 billion, or $2.26 a share, in the same quarter last year.
The loss from continuing operations was $2.20 per share, wider than the analysts' average forecast of $1.96, according to Reuters Estimates.
Net revenue declined 69 per cent to $2.93 billion. Analysts had expected $3.35 billion.
Chief Executive John Thain said on a conference call with investors that the three months ended March 31 were "as difficult a quarter as I've seen in my 30 years on Wall Street."
But Thain also implied that Merrill Lynch may post profits in coming quarters, and told a group of reporters that the month of April was generally better than March.
When asked on a conference call whether a comment implied that Merrill Lynch was expecting to be profitable in the quarters ahead, Thain said: "We don't give guidance, but your comment is a very, very reasonable expectation."
Thain, who took the reins of the world's largest brokerage in November, is trying to turn the company around as it struggles with the aftermath of bad bets on subprime mortgages and repackaged debt. He is increasing the investment bank's business in emerging markets and cutting costs to help offset losses on assets.
As part of that cost cutting, Merrill said it was cutting head count by 4,000 from year-end 2007 levels; about 1,100 of the reductions took place in the first quarter. Job cuts will focus on the global markets and investment banking business and support areas, and will not affect retail brokers.
At the end of the first quarter, the company had 63,100 employees. Job cuts are expected to result in a restructuring charge of about $350 million in the second quarter, and are expected to generate about $800 million of annual cost savings.
Merrill Lynch had already recorded more than $24 billion of write-downs in prior quarters, spurring it to raise over $12 billion of new capital.
Thain said that despite the loss, Merrill Lynch remained "well-capitalized," and reiterated that the company does not plan to issue common stock. But it may issue preferred shares, Thain told reporters.
Moody's Investors Service said it is reviewing whether Merrill Lynch can improve its capital position amid continued difficult market conditions, and may cut the company's debt ratings. Moody's estimates Merrill Lynch could face another $6 billion of write-downs in its collateralized debt obligation portfolio.
Merrill Lynch reported losses, write-downs and reserve increases of $1.5 billion on collateralized debt obligations, $925 million on loans financing leveraged buyouts, $3.5 billion on an investment portfolio, more than $800 million on residential mortgages, and $3 billion for exposure to bond insurers.
That totals about $9.7 billion, but about $3.1 billion of the investment portfolio write-downs will not affect net income, but instead cut into equity on the balance sheet.
A $2.1 billion benefit from widening credit spreads partly offset the write-downs and losses on risky assets.
Merrill Lynch shares were up 70 cents or 1.6 per cent to $45.59 in midday trading on Thursday.
At Wednesday's close, Merrill Lynch's shares had fallen 16.4 per cent year to date, compared with a roughly 25 per cent decline in the Amex securities broker-dealer index. (Reuters)
Loss-hit Merrill to cut 2,900 jobs