Bad debts lead to Merrill loss

Merrill Lynch joins other institutions hit by sub-prime loans woes

Merrill Lynch has reported $7.9bn (£3.85bn) in write-downs for the third financial quarter of the year, leading to its first loss since 2001.

The brokerage giant reported a net loss of $2.3bn from continuing operations, against a $3bn profit a year ago.

The losses were caused by exposure to bad mortgage-related debt, such as that in the crisis hit US sub-prime sector.

Merill is the latest bank to reveal its exposure to bad debt, with a write-down much larger than initially forecast.

'Difficult markets'

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.

This is a bloodbath for certain Bill Fitzpatrick, Johnson Family Funds

"In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO [collateralised debt obligations] positions with more conservative assumptions," said Merrill chief executive Stan O'Neal.

"The result is a larger write-down of these assets than initially anticipated."

Analysts were taken aback at the size of the loss.

This is a bloodbath for certain," said Bill Fitzpatrick, analyst at Johnson Family Funds.

"It speaks very poorly to Merrill's risk management practices."