Merrill posts worst quarter in its history

NEW YORK (Reuters) - Merrill Lynch & Co Inc (MER.N) reported about $16 billion in mortgage-related writedowns and adjustments on Thursday in the worst quarter of the company's history.

Merrill shares fell 8.3 percent to $50.51 as investors worried about more write-downs and the company's exposure to capital-strapped bond insurers.

The start of a booming year for investment banking fees and big bets on subprime mortgages ended in dismal fashion. Merrill's fourth-quarter net loss was $9.8 billion, or $12.01 a share, compared to year-ago profit of $2.3 billion, or $2.41 a share.

For 2007, Merrill lost about $8 billion on second-half write-downs and adjustments of about $24 billion. Lax risk management led to the ouster of Stan O'Neal as chief executive while nearly halving the company's market capitalization.

Recently named CEO John Thain said in a conference call the world's largest brokerage will ease risk taking but that it has enough capital to move forward after $12.8 billion in infusions from U.S. and foreign investors.

But Thain said he could not promise the company will avoid further write-downs on subprime mortgage-related positions.

He called the fourth-quarter results "unacceptable."

Thain said there would be no dramatic job cuts and added that the company is not interested in selling its stakes in Bloomberg LP and asset manager BlackRock Inc (BLK.N).

Analysts expected Merrill's fourth-quarter write-down to land anywhere from $10 billion to $15 billion.

Actual damages included $11.5 billion in write-downs on U.S. collateralized debt obligations and subprime mortgage-related securities. The company also had to make a negative adjustment of $3.1 billion to reflect soured hedges with bond insurers.

In addition, Merrill took write-downs of $900 million on exposure to Alt-A loans, which are a slightly better credit risk than subprime mortgages, and on mortgages outside the United States. The company also wrote-down $356 million worth of exposure to leveraged loans and commercial real estate.

"The loss seems higher than expected," said Peter Boockvar, an equity strategist at Miller Tabak & Co in New York. "The write-down, I guess, was large, about in line. But we knew that it was going to be bad."

Merrill shares are down 45 percent over the past year.

Fourth-quarter results eclipsed the $2.3 billion loss in the third quarter when Merrill recorded $8.4 billion in write-downs.

"I expected a large (loss) number and it was," said Rose Grant, a portfolio manager at Eastern Investment Advisors in Boston, which has $2 billion under management. "We were looking for a 'kitchen sink' quarter, where we can get these problems behind us and look at other areas of the business and see where the earnings are coming from. We're about 80 percent there."

Overshadowed by Merrill's credit implosion were stellar results from the company's brokerage and investment banking operations.

Investment banking revenue climbed 22 percent to $4.9 billion in 2007. Meanwhile, Merrill's global wealth management division, which includes its army of brokers, produced net revenue of $14 billion, up 18 percent from the prior year.

Bank of America analyst Michael Hecht said despite Merrill's stumbles it is still in position to keep its best employees and attract new talent.

The wealth management franchise attracted $30 billion in new money from clients in the fourth quarter. Total clients assets stood at $1.8 trillion at year's end.