Global financial services firm Merrill Lynch & Co. (MER), which is to be acquired by Bank of America Corp. (BAC) in an all-stock deal, Thursday reported a wider loss for the third quarter, hurt by several factors including write-downs. The loss per share turned out to be worse than what analysts had estimated.
New York-based Merrill Lynch's net loss for the third quarter widened to $5.2 billion or $5.58 per share from $2.24 billion or $2.82 per share for the year-ago quarter. Adding preferred stock dividends, net loss applicable to common shareholders widened to $7.471 billion from $2.314 billion in the previous year.
Net loss for the latest period included several items, including certain non-compensation expense items such as a $2.5 billion non-tax deductible payment to Temasek Holdings related to the July common stock offering and a $425 million expense arising from Merrill Lynch's previously announced offer to repurchase auction rate securities from its private clients and the associated settlement with regulators.
The company reported a third quarter net loss from continuing operations of $5.12 billion or $5.56 per share, compared to a net loss from continuing operations of $2.4 billion or $2.99 per share for the third quarter of 2007.
On average, 16 analysts polled by First Call/Thomson Financial expected a loss of $5.22 per share.
Third quarter 2008 net revenues dropped to $16 million from $380 million in the previous year. Analysts were looking for revenues of $759.94 million.
Revenues of the latest period were driven by several items. These items include net write-downs of $5.7 billion resulting from the sale of U.S. super senior ABS CDOs1 and the termination and potential settlement of related hedges with monoline guarantor counterparties and net pre-tax gain of $4.3 billion from the sale of the 20% ownership stake in Bloomberg, L.P.
Also included are net write-downs of $3.8 billion principally from severe market dislocations in September, net gains of $2.8 billion due to the impact of the widening of Merrill Lynch's credit spreads on the carrying value of certain of its long-term debt liabilities and net losses of $2.6 billion resulting primarily from completed and planned asset sales across residential and commercial mortgage exposures.
Net revenues in the previous year included $8.5 billion in net write-downs, primarily related to U.S. ABS CDO and residential mortgage-related exposures, and a $609 million net gain related to the changes in carrying value of certain of our long-term debt liabilities.
Excluding items, adjusted net revenues were $5.7 billion in the third quarter of 2008, down 31% on a comparable basis from the prior-year period, reflective of the challenging operating environment.
Global Markets and Investment Banking reported net revenues of negative $3.2 billion, flat with last year. Global Wealth Management generated net revenues of $3.2 billion, down 9% from last year, primarily due to declines in transactional and origination revenues resulting from reduced client and issuer activity amidst increasingly challenging market conditions.Total non-interest expenses mounted to $8.267 billion from $4.018 billion.
For the first three quarters put together, net loss was $11.8 billion or $13.20 per share, compared to net earnings of $2.1 billion or $2.03 per share for the prior-year period. Net revenues plunged to $834 million from $19.4 billion in the prior-year period.
Among others in the industry, JPMorgan Chase & Co. (JPM) reported a third-quarter profit that plunged 84% from the year-ago period, along with a drop in revenues. The company noted that the decline was driven by markdowns on mortgage trading positions and leveraged loans, and higher credit costs due to continued deterioration in its home-lending portfolio. However, the results exceeded analysts' expectations of a loss for the quarter.
Bank of America Corp. (BAC) last week reported a sharp decline in third-quarter profit as a 21% growth in revenue was offset by a significant increase in credit costs. The company also slashed its quarterly dividend by 50% and revealed a $10 billion stock sale to raise capital to achieve an 8% Tier 1 capital ratio.
MER closed Wednesday's regular trade at $18.24, down from the previous close of $21.35, on 48.63 million shares.
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