Merrill Lynch has warned it will have to write down a $5.5bn (£2.7bn) loss for bad investments linked to defaulted US sub-prime mortgages.
Merrill Lynch is just the latest bank to reveal its exposure
Merrill, the latest investment bank to reveal its exposure to the downturn in the industry, said it would post a third-quarter loss as a result.
It will now make a 50 cent loss per share over three months to September, instead of an expected $1.43 profit.
This will be Merrill's first quarterly loss in more than six years.
Merrill's admission follows similar warnings from Citigroup, Credit Suisse and UBS as the extent of the crisis in the US sub-prime loans sector becomes known.
Some analysts said they were concerned that Merrill's losses might continue.
"The core issue is whether or not it is going to be enough. Merrill had huge exposures to the mortgage sector," said Sean Egan, managing director of independent credit ratings firm Egan-Jones Ratings.
Later on Friday, Washington Mutual - of the biggest mortgage lenders in the US - said it expected third quarter earnings would fall by 75% following bad mortgage loans and securities investments.
The firm forecasts that $975m will have to be set aside to cover such losses, including $425m for loans that stand no chance of being repaid.