Merrill writes down $5.5bn in sub-prime losses

by Gill Montia

Story link: Merrill writes down $5.5bn in sub-prime losses

Merrill Lynch is the latest investment bank to warn of losses linked to the US sub-prime crisis.

The bank expects to write down $5.5 billion in connection with US sub-prime borrowers who have defaulted on their mortgages. As a result, it is warning of losses in the third-quarter of 2007.

Profit for the three months to September had been forecast at $1.43 per share but the bank will instead be posting its first quarterly loss in more than six years.

The news from Merrill Lynch follows similar warnings from Citigroup, Credit Suisse and UBS, however, some analysts have voiced concerns that Merrill’s losses might continue.

According to Sean Egan, managing director of Egan-Jones Ratings, the independent credit ratings firm “Merrill had huge exposures to the mortgage sector.”

The bank’s chairman, Stan O’Neal, has admitted that “The impact of this difficult market was much more severe in certain of our . . . businesses than we expected earlier in the quarter.”

Merrill has reported that it is beginning to see signs of a return to more normal activity levels in a number of markets.

Nevertheless, there are rumours of severe job cuts before the end of the year, both at Merrill and throughout the sector.