Merrill’s Losses Continue To Surprise

Oops, looks like Merrill underestimated its quarterly loss—again. After an $8.4 billion write-down in the third quarter that resulted in $2.3 billion in losses, the fourth quarter is likely to be far worse.

Oops, looks like Merrill underestimated its quarterly loss—again. After an $8.4-billion write-down in the third quarter that resulted in $2.3 billion in losses, the fourth quarter is likely to be far worse.

According to this story in the New York Times, Merrill may have to write-down as much as $15 billion for the fourth quarter, as bad sub-prime bets continue to be quantified. Analyst forecasts had estimated a write-down hit of between $10 billion and $12 billion.

Says one Merrill Lynch financial advisor: “I’d like management to come out and put a time frame on this, to say, ‘by the end of this quarter,’ or whatever, this will end,” says the 35-year-old FA. He says his clients aren’t worried, they know the bank won’t fail, but prospective clients are more tense than usual. But his soon-to-retire colleagues are the ones that he sympathizes with the most—the ones with loads of Merrill stock in their 401(k)s and such. (Merrill’s stock is down 28 percent since August.)

The truth will come out next Thursday, January 17, when Merrill Lynch reports earnings. Hopefully the bloodletting will end after that. “As long as Merrill's fourth-quarter write-down comes in under $15 billion, the company would remain well capitalized,” wrote Brad Hintz, an analyst at Bernstein, in a research note on Thursday. “A $20- billion write-down this quarter or above would significantly increase leverage and would threaten the credit ratings of the firm.”

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