Thursday, 25 October 2007

MER $8.4 billion in writedowns oops!

From the WSJ:

Merrill Takes $8.4 Billion Credit Hit

Merrill said yesterday it took an $8.4 billion hit in the third quarter from revaluing bonds backed by mortgages and other write-downs. That was far higher than the $5 billion hit Merrill estimated just two and a half weeks ago -- a surprise that led the firm's stock price to fall 5.8% as its credit rating was downgraded.

Overall, Merrill recorded a $2.24 billion loss for the quarter, making it the only one of Wall Street's five biggest investment banks to end the period in the red. Ratings firm Standard & Poor's described the write-downs as "staggering" and blamed "management miscues."

Merrill Lynch's board met on Sunday and Monday to preview the results and grilled Mr. O'Neal and top executives. The meeting was "definitely tense and very testy," says a person familiar with it....

The $8.4 billion hit leaves it clear that Mr. O'Neal and his team didn't always appreciate the risks they took to achieve the greater profits. The write-down surpasses a $6 billion loss suffered in 2005 by the hedge fund Amaranth Advisers, which had stood as the largest single known Wall Street loss.

Not much more to say really other than that is one ugly result. Considering that Merrill's upped their losses by a cool $3 billion from just a couple of weeks ago, does anyone really believe this is going to be just a one quarter event?