Ineffective internal controls at Merrill Lynch caused the firm to understate its 2008 losses by more than $500m, the investment bank said yesterday in its annual report.

Merrill, acquired by Bank of America on January 1, shocked investors last month with the disclosure of a $15.3bn loss for the fourth quarter of 2008 and full-year losses of $27.1bn. But in its revised figures, Merrill disclosed losses for 2008 of $27.6bn.