Merrill Lynch Loss Wider Than Expected

From Yahoo...

Merrill Lynch said it was taking a sharper-than-expected writeoff of 7.9 billion dollars for losses in its mortgage activities in the third quarter. Merrill Lynch said the charge was "significantly greater" than the 4.5 billion dollars forecast earlier this month. The investment bank reported a third-quarter net loss from continuing operations of 2.24 billion dollars compared with a net profit of 2.14 billion dollars a year ago. The loss amounts to 2.85 dollars a share, far wide that that the Wall Street consensus forecast for a loss per share of 45 cents.

From TheStreet...

Merrill Lynch stunned Wall Street for the second time this month with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and structured paper. The announcement comes three weeks after Merrill surprised investors by estimating that its third quarter would swing to a loss under the weight of $4.5 billion in writedowns on certain securities. Merrill said the writedown increased after the firm took a second look at its valuation of collateralized debt obligations and subprime mortgage backed securities.

Merrill's third-quarter report has to rank among the worst in modern Wall Street history. The firm swung to a loss of $2.24 billion, or $2.85 a share, from continuing operations from a year-ago profit of $3.05 billion, or $3.14 a share. The firm took a $5.9 billion loss on its in-house trading operation. said $6.9 billion of the third-quarter writedown was related to its CDO positions and $1 billion to its subprime holdings. The firm said its net exposure to those securities dropped from second-quarter levels, but it continues to have $15 billion worth of CDO exposure and nearly $6 billion worth of subprime exposure.

What I (and I'm sure others) want to know is how could the loss be SIX TIMES as large as expected just three weeks ago. What kind of risk management do the guys at Merrill Lynch have in place?