Merrill’s Thain bucks optimistic view

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John Thain, chief executive of Merrill Lynch, has refused to endorse the optimistic view offered by other Wall Street chiefs that the worst impact from the credit squeeze has passed.

“I hope those who say we are at the end are correct. I am somewhat more sceptical,” Mr Thain said Thursday, following Merrill’s disclosure of a $1.97bn first-quarter loss and $4.5bn in additional writedowns on the value of its mortgage-related assets, leveraged loans and other holdings.

Consumers were just beginning to feel the impact of higher food and energy prices, Mr Thain said. “We haven’t yet seen the full impact on the real economy.”

Merrill reported its third consecutive quarterly loss in results worse than analysts expected.

Its $82bn in excess liquidity put the bank in a strong position and he could raise more capital by issuing preferred shares.

Merrill on Thursday also said it would cut 3,000 more jobs, on top of the 1,000 already announced.

Mr Thain has said he will focus on Merrill’s retail financial advisory business, its traditional strength, rather than riskier capital markets activities.

Merrill was the largest underwriter of asset-backed collateralised debt obligations during the credit bubble and was left with huge exposure when investor demand for the securities, often backed by subprime mortgages, collapsed.

The bank had already taken about $24bn in writedowns and Thursday said it would take a further $1.5bn hit on its CDO holdings and $3bn related to hedges with bond insurers.

Merrill also said it had writedowns related to leveraged loans and residential mortgages but they were offset by a $2.1bn accounting gain related to spreads on its long-term debt.

Overall, Merrill said it lost $1.97bn, or $2.20 per share, down from a profit of $2.03bn, or $2.12 per share, last year. Analysts had expected losses of $1.96 per share. Revenue declined 69 per cent to $2.9bn. Merrill shares were up slightly at $45.49 in early trade on relief that the figures were not worse. Outside the credit market turmoil, some of Merrill’s other businesses continued to perform well. Global wealth management, which includes the brokerage network, generated record net revenues of $3.6bn. Currencies and rates trading also generated record revenues.

Investment banking fared less well, with revenues down 40 per cent to $805m, reflecting drops in debt and equity origination and slackening deal volumes.

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