Merrill Lynch posts 2 Billion$ loss.

[The Grim Squeaker]

Merrill Lynch posts big loss
By Dan Wilchins

NEW YORK (Reuters) - Merrill Lynch & Co on Thursday posted a quarterly loss of $2 billion and said it planned to cut 4,000 jobs after recording more than $9.5 billion in write-downs and losses on subprime mortgages and other risky assets.

The results were worse than analysts' gloomy expectations, and shares of the world's largest brokerage fell more than 2 percent in premarket trading.

Chief Executive John Thain 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 write-downs.

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.

The job cuts cover about 10 percent of Merrill Lynch staff, excluding financial advisers and investment associates. The company, which ended March with 63,100 employees overall, said it would target the job cuts to its markets and investment banking operations and in support areas.

Merrill Lynch's first-quarter net loss was $1.96 billion, compared with a year-earlier profit of $2.16 billion.

Including preferred stock dividends, the loss was $2.14 billion, or $2.19 per share, and compared with a profit of $2.11 billion, or $2.26 a share, a year earlier.

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 percent to $2.93 billion. Analysts expected $3.35 billion.

Thain said that despite the loss, Merrill Lynch remained "well-capitalized."

The company had already recorded more than $24 billion of write-downs in prior quarters, spurring it to raise more than $12 billion of new capital. Thain said this month that he did not expect to raise more capital in the foreseeable future.

A $2.1 billion benefit from widening credit spreads partly offset the write-downs and losses on risky assets.

Merrill Lynch shares were down 2.2 percent at $43.91 in trading before the market opened.

At Wednesday's close, Merrill Lynch's shares had fallen 16.4 percent year to date, compared with a roughly 25 percent decline in the Amex securities broker-dealer index .XBD.

Ouch, in one quarter? And before the r ... ?[/size]).

[Darth Wong]

Ouch, in one quarter? And before the real mess starts setting in? Not as bad as the 13 Bill GE writeoff numerically, but losses in major companies have been rather rare in Wall street up till now.

GE didn't write off $13 billion. What happened was that they missed their earnings projections for the quarter, so the value of their stock plunged by 13%. This led to a drop in their market cap of roughly $47 billion.

GE's business is basically solid. Not like these fucking investment banks.

[aerius]

So Merrill Lynch screws the pooch, loses a boatload of money and their stock is up nearly 2% right now. If I didn't know better I'd be convinced we were following stocks in some Banana Republic.

[Sea Skimmer]

Merrill Lynch has something like 65 billion dollars in yearly operating revenue and manages over a trillion dollars in investor assets. This isn’t good, but Merrill Lynch isn’t going anywhere from losses like this.

[RedImperator]

So Merrill Lynch screws the pooch, loses a boatload of money and their stock is up nearly 2% right now. If I didn't know better I'd be convinced we were following stocks in some Banana Republic.

Every time this happens, I hear that people think it's actually good news, because it represents the "last" of the subprime funny-money getting flushed out of some bank or another's system. I was hearing that as far back as September or October, I think. I've come to think the stock market is just acting randomly anymore, because its behavior seems to have become even more decoupled from reality than usual.

[Admiral Valdemar]

Every time this happens, I hear that people think it's actually good news, because it represents the "last" of the subprime funny-money getting flushed out of some bank or another's system. I was hearing that as far back as September or October, I think. I've come to think the stock market is just acting randomly anymore, because its behavior seems to have become even more decoupled from reality than usual.

Essentially, yes. The Fed itself predicted the whole mess would, globally, amount to only around $100bn. Over $200bn later, and there's no end in sight. The mess in the US housing area alone is $1-2 trillion. Globally? It's not a number we can call sane.

As Feynmann once said, these numbers aren't astronomical, they're economical in scale.

[Darth Wong]

Every time this happens, I hear that people think it's actually good news, because it represents the "last" of the subprime funny-money getting flushed out of some bank or another's system. I was hearing that as far back as September or October, I think. I've come to think the stock market is just acting randomly anymore, because its behavior seems to have become even more decoupled from reality than usual.

Essentially, yes. The Fed itself predicted the whole mess would, globally, amount to only around $100bn. Over $200bn later, and there's no end in sight. The mess in the US housing area alone is $1-2 trillion. Globally? It's not a number we can call sane.

What do you mean "globally"? The sub-prime mortgage crisis is mostly a "Made in the USA" problem; global exposure only exists insofar as foreign companies foolishly invested in American mortgage-backed securities, but the scope of the problem itself does not increase because of foreign exposure to it.

And where does the $1 to $2 trillion figure come from? International economists have been predicting $300 to $400 billion losses for many months now; it's only the Bush Administration which predicted such small losses and ended up looking so stupid when the losses rocketed past their predictions so quickly.

[Admiral Valdemar]

What do you mean "globally"? The sub-prime mortgage crisis is mostly a "Made in the USA" problem; global exposure only exists insofar as foreign companies foolishly invested in American mortgage-backed securities, but the scope of the problem itself does not increase because of foreign exposure to it.

And where does the $1 to $2 trillion figure come from? International economists have been predicting $300 to $400 billion losses for many months now; it's only the Bush Administration which predicted such small losses and ended up looking so stupid when the losses rocketed past their predictions so quickly.

Made in the USA means this has affected the global economy greatly. It isn't only the US that has highly leveraged property markets. The UK, Spain, France, Germany, Iceland, Norway, Australia and others are experiencing a severe downturn with mortgage rates rising and LIBOR rates with them. The banks are jittery to all hell and don't want to lend, no matter how much the Fed, ECB or BoE cut rates. In Germany, it's gotten so bad that they fear for their whole financial system because of it. Iceland is also witnessing a colossal loss in the value of its currency and assets as they try to stabilise their own banking jitters by playing with rates too (but not cutting, thankfully).

The trillion figures come from stories such as this where repackaged debt is going bad everywhere, but no one can really say where or how bad. We have rough guesses, but given the global derivatives market is in the hundreds of trillions, even a fraction of a percentage point is more than the Fed's own Bernanke predicted would be the worst case scenario last summer.

The G7 have given the global institutions less than one-hundred days to declare their holdings and give full transparency on their losses. No one really sees that as happening given the bullshit being spouted now and the jumping through hoops going on. We've already seen CEOs and CFOs say their companies are fine one day, only for them to lose billions the next. No one is going to take a bite of this shit sandwich until a gun is put to their temple, and even then, I expect this bailing out strategy will go on until the whole plan, whatever it is, falls apart.

[J]

I've come to think the stock market is just acting randomly anymore, because its behavior seems to have become even more decoupled from reality than usual.

Other than commodities and Treasuries, not much in the markets makes sense these days. Major companies report record losses and job cuts? That's ok, rally on, 400 point day for the Dow. Unemployment, inflation, and debt numbers all come in worse than expected? Well, that's good for a 4% upswing. At this rate I wouldn't be too surprised if the US declares it's starting a nuclear war with Russia and the markets respond by tripling in value.

Getting back on topic, this form tells you that every major bank in the US is screwed. Non-borrowed reserves are nearly $100 billion in the negative, which essentially means the banks have borrowed around $140 billion from the Fed to maintain their required reserves. To summarize, in addition to the write-offs and losses they've declared, they've also managed to lose a futher $140 billion in the last 5 months, and $80 billion in the last month alone. Not even the war in Iraq burns through money that fast.

[Darth Wong]

Made in the USA means this has affected the global economy greatly. It isn't only the US that has highly leveraged property markets. The UK, Spain, France, Germany, Iceland, Norway, Australia and others are experiencing a severe downturn with mortgage rates rising and LIBOR rates with them. The banks are jittery to all hell and don't want to lend, no matter how much the Fed, ECB or BoE cut rates. In Germany, it's gotten so bad that they fear for their whole financial system because of it. Iceland is also witnessing a colossal loss in the value of its currency and assets as they try to stabilise their own banking jitters by playing with rates too (but not cutting, thankfully).

How do those stories indicate that the US sub-prime problem gets any bigger? They incorporate concerns about the general US economic slowdown into those articles, which will obviously cause problems for years to come, but you can't wrap the entire US economic slowdown under the sub-prime umbrella.

The trillion figures come from stories such as this where repackaged debt is going bad everywhere, but no one can really say where or how bad. We have rough guesses, but given the global derivatives market is in the hundreds of trillions, even a fraction of a percentage point is more than the Fed's own Bernanke predicted would be the worst case scenario last summer.

That story describes several bond insurers who insure a total of $2.4 trillion in bonds. However, the idea that 100% or even 25% of these bonds would go bad just because Moody's is thinking of downgrading the insurers' debt rating does not follow logically at all.

The G7 have given the global institutions less than one-hundred days to declare their holdings and give full transparency on their losses. No one really sees that as happening given the bullshit being spouted now and the jumping through hoops going on. We've already seen CEOs and CFOs say their companies are fine one day, only for them to lose billions the next. No one is going to take a bite of this shit sandwich until a gun is put to their temple, and even then, I expect this bailing out strategy will go on until the whole plan, whatever it is, falls apart.

I agree with that. I just don't see the point of declaring huge numbers or saying that the predictions have been laughably wrong when it's really only the Bush Administration which got it so laughably wrong, and they have a history of doing that.

[Admiral Valdemar]

How do those stories indicate that the US sub-prime problem gets any bigger? They incorporate concerns about the general US economic slowdown into those articles, which will obviously cause problems for years to come, but you can't wrap the entire US economic slowdown under the sub-prime umbrella.

They don't. They indicate that the global problem is just starting to be revealed. The US problem is big and many don't fully appreciate how big. After all, none of this happens in a vacuum thanks to the wonders of globalisation, and so we can have ripples spread out from one place and feed into elsewhere. A bank in America gets scared after a writedown, causing one in Europe to do likewise and stop lending, which affects a US client and so on. What is even less understood is how this same system has caused problems elsewhere, and now we're seeing that even otherwise happy markets are now going to shit based on the fear alone. The UK at the end of summer was full of people talking about endless growth in housing value. The estate agents may as well have snorted coke and given predictions, they saw nothing changing what has been happening for years.

That story describes several bond insurers who insure a total of $2.4 trillion in bonds. However, the idea that 100% or even 25% of these bonds would go bad just because Moody's is thinking of downgrading the insurers' debt rating does not follow logically at all.

It need not be even anywhere near as 10%. For the sums of money being talked about, anything over a couple of percent is a major economic fuck-up without comparison this side of the '30s. The amount of valuations that are, literally, worth less than the paper they're written on is simply huge. We'll be lucky if this ends finally on only a couple of trillion, never mind a number larger than the global GDP.

I agree with that. I just don't see the point of declaring huge numbers or saying that the predictions have been laughably wrong when it's really only the Bush Administration which got it so laughably wrong, and they have a history of doing that.

Well, to be fair, it was Bernanke really, who isn't a Bush lackey per se, though he may as well be. The same bullshit has been rife here too, with Brown going from "The UK is in an excellent position" at the start of the year to "We may have fucked up. Badly" in the last month. The change in the markets since the New Year is quite astonishing.

How long can the central banks keep this up? For the Fed, they have till the end of summer before things get out of control. The ECB is trying not to play into the US' hands (they want to have everyone get this over with by declaring what cards they have and then taking their lumps, while the Fed prefers secrecy and more bail outs) and the BoE is half-way in-between. The G7 meeting only alluded to some "plan" that, thus far, seems to consist of handing out vast sums of cash to people who need it (read: major banks and the like) whilst praying it's enough.

[PainRack]

What about the rumours that Soverign Wealth Funds are supporting the stock market rally?

I know that Temasek has been purchasing Merril stocks and a couple of newspaper articles on rumours that various Chinese wealth funds have been propping up Merrill.........

[Fingolfin_Noldor]

What about the rumours that Soverign Wealth Funds are supporting the stock market rally?

I know that Temasek has been purchasing Merril stocks and a couple of newspaper articles on rumours that various Chinese wealth funds have been propping up Merrill.........

I don't know about you, but I have grown very uncomfortable with money being throw at this, when there's a possibility of things having not bottomed out. As it is, UBS hasn't bottomed out altogether, and they recently extended the begging bowl again.

[PainRack]

I don't know about you, but I have grown very uncomfortable with money being throw at this, when there's a possibility of things having not bottomed out. As it is, UBS hasn't bottomed out altogether, and they recently extended the begging bowl again.

Neither am I.

Remember all that talk about soverign wealth funds being used for political purposes? Most of that was directed at the Chinese wealth funds but I see no reason why it won't apply to others.

[aerius]

Figures. Citigroup loses $5.1 billion in a single quarter and their stock is up 5% so far today. I think I'm beginning to understand The New Economy, if a bank declares losses without going bankrupt, its shares will go up.