Wall Street investment bank Merrill Lynch said Wednesday it would take $7.9 billion in write-down charges on collateralized debt obligations and subprime mortgages, significantly more than the $4.5 billion the company forecast during its pre-earnings release on Oct. 5 (full story). "In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated," CEO Stan O'Neal said (full earnings call transcript later today). Q3 2007 total net revenue of $577 million plunged 94% from $9.8 billion in the prior-year period and from $9.7 billion last quarter. Net loss from continuing operations was $2.3 billion ($2.85/share), after net earnings of $2.22/share last quarter and $3.14/share in the year-ago Q3. Analysts surveyed by Reuters were expecting a net loss of $0.45/share on revenue of $2.86 billion. "This is a bloodbath for certain," Johnson Family Funds analyst Bill Fitzpatrick said. "It speaks very poorly to Merrill's risk management practices. Clearly, heads are going to roll... Merrill has lost credibility in its write-down projections. My gut feeling is that they tried to kitchen-sink the losses in the third quarter, so future write-downs will be smaller." Merrill's Global Wealth Management unit was a bright spot, generating Q3 revenue of $3.5 billion, up 29%. "With the other business lines, you're looking at some good numbers," Deutsche Bank's Owen Fitzpatrick said. Shares are down 3.4% to $64.88 in pre-market trading.
Commentary: Investment Banks: Not Dead Yet • Goldman Analyst Slashes Targets for Merrill • Global Rescue Fund Seeks Participants - WSJ
Stocks to watch: MER. Competitors: GS, MS, JPM, BSC, LEH. ETFs: IAI, KCE
Earnings call transcript: Merrill Lynch Q2 2007
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