Merrill Lynch & Co. shares slipped in morning trading Friday after issuing its latest assessment of the damage it has suffered from the credit crisis: its fourth straight quarterly loss and write-downs from failed investments approaching $40 billion.
Merrill shares fell $1.38, or 4.5 percent, to $29.35 after the start of regular trading.
The world's biggest brokerage Thursday announced a wider-than-expected $4.89 billion second-quarter loss and said it was selling assets _ its stake in media company Bloomberg LP for $4.4 billion and its Financial Data Services Inc. subsidiary for $3.5 billion.
After Wells Fargo & Co. and JPMorgan Chase & Co. announced stronger-than-expected earnings this week, Merrill's results served as a reminder that the credit crisis isn't fading. Global banks and brokerages have been forced to take some $300 billion of write-downs in the past year, an amount that some believe could grow to $1 trillion before the turmoil has passed.
"This was a difficult and disappointing quarter in terms of the bottom line," Chief Executive John Thain told analysts on a conference call. "But, in spite of this loss, we likely have in our last two quarters more than replaced the capital that we lost."
Merrill's quarterly loss came to $4.97 per share, after accounting for the payment of dividends for the three months ended June 30. That compares to a year-ago profit of $2.01 billion, or $2.24 per share. The broker reported negative revenue of $2.11 billion versus revenue of $9.46 billion a year earlier.
Analysts had expected that the New York-based brokerage would lose $1.91 per share, according to Thomson Financial.
Merrill, which had already taken $29 billion of write-downs, racked up a sizable amount in the latest quarter. The brokerage took $9.4 billion of charges and write-downs from mortgage-backed securities, unprofitable hedge positions, and residential mortgage exposure.
The company reported $3.5 billion of losses from its exposure to collateralized debt obligations, which are financial instruments tied to mortgages. In addition, it lost $2.9 billion from wrong-way hedges it bought from bond insurers.
It also took another $1.7 billion in losses from its investment portfolio of its U.S. banks, and $1.3 billion in write-downs from exposure to residential mortgages.
Though the firm's core business held up better than expected, revenue from banking, trading and wealth management fell 21 percent from a year earlier. The company also said it cut its risk exposure across all of its businesses, and that its capital base now stands at $92 billion.
Merrill's report was clearly disappointing to investors. The stock, which closed up 9.8 percent at $20.73 in regular trading amid a general stock market rally, plunged in after-hours trading after the results were announced.
The debt-rating agency Moody's downgraded Merrill Lynch's debt within minutes after the results were released. Standard & Poor's affirmed the broker's ratings, though it had downgraded them just a few weeks ago.
Peter Nerby, an analyst at Moody's, said Merrill's options for selling assets or raising equity capital to offset losses "are now reduced given the difficult industry and capital markets environment."
Indeed, Thain said the company's $1 trillion balance sheet gives him a number of ways to raise capital before issuing more shares or finding another investor. Merrill has already raised more than $15 billion of new capital since December from sovereign wealth funds and other institutional investors.
The deal to sell the Bloomberg stake had been expected for weeks, and the agreement calls for Merrill's shares to be sold back to the media company. The sale of First Data is still in negotiations, and Merrill has so far signed a "letter of intent" to an undisclosed buyer.
Thain abandoned an effort to sell Merrill's 49.8 percent stake in money manager BlackRock Inc., and in fact said Merrill was broadening the partnership. Both BlackRock and Merrill cooperate in sending business to one another, and in some cases share the same offices around the world.
The investment is valued at about $13 billion, though Thain said there's no immediate need to unravel Merrill's position.
"We would look at all of our options and decide what makes the most sense for the long-term interest of our shareholders," he said. "Right now we think we are in a good position, are well capitalized, and will continue to shrink our risk-weighted assets."
With Merrill's results out of the way, investors next turn their attention to Citigroup Inc. The nation's biggest bank by assets is expected to post its third straight quarterly loss before the opening bell on Wall Street Friday.
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