Dwindling Herd

17 January 2008 By Antony Currie Follow @AntonyMCurrie

Sure, Merrill s new boss has bolstered the firm s capital, and may have room to absorb more hits on its CDOs. But last quarter s $15bn writedown puts the Thundering Herd on a whopping multiple of 1.7 times book. Thain will have to pull out the stops to justify that.

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Merrill Lynch reported a thirdquarter pretax loss of $14.9bn on negative net revenues of $8.2bn. The loss from continuing operations was $10.3bn, or $12.57 per diluted share.

Writedowns on subprime mortgages were primarily responsible. Merrill's fixedincome division took a hit of $9.9bn on CDOs, $1.6bn on subprime mortgages, and another $3.1bn to cover its full exposure on CDO hedges with ACA, a monoline insurer that was recently downgraded to junk.

Merrill's banking units also took a hit on subprime and altA positions, writing down $1.3bn pretax through other comprehensive income/(loss), and $869m through the income statement.

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