The numbers are out and they’re not pretty.
Merrill Lynch lost $4.6bn, or $4.95 per share, compared with a profit of $2.1bn or, or $2.24 per share in the year ago quarter.
Consensus estimates were for losses ranging from 93 cents to $4.21 a share, according to analysts surveyed by Bloomberg.
Moody’s responded with a swift downgrade to MER’s senior long-term debt to A2 from A1. Five year credit default swaps on the investment bank’s debt widened 10 basis points to 335bp after the earnings release, while shares fell 8.4 per cent to $28.15 in aftermarket trade.
The breakdown of the breakdown:
The revenue decline was driven by net losses totaling $3.5 billion related to U.S. super senior ABS CDOs and credit valuation adjustments of negative $2.9 billion related to hedges with financial guarantors, about half of which related to U.S. super senior ABS CDOs.
Other significant net losses included $1.7 billion in the investment portfolio of Merrill Lynch’s U.S. banks, as well as $1.3 billion from certain residential mortgage exposures.
U.S. sub-prime mortgage-related exposures declined 29% to $1.0 billion, primarily due to $544 million in markdowns. Net exposures related to U.S. Alt-A residential mortgages declined 51% to $1.5 billion, due to sales of $1.1 billion and net losses of $549 million.
Net exposures related to non-U.S. residential mortgages declined 15% to 5 $7.4 billion due to the maturity of a warehouse lending facility, net write-downs of $229 million, paydowns of principal and sales of mortgage-backed securities.
Within the investment securities portfolio of Merrill Lynch’s U.S. banks, net pre- tax losses of approximately $1.7 billion were recognized through the statement of earnings during the second quarter of 2008. These net losses reflected the other
than temporary impairment in the value of certain securities, primarily U.S. Alt-A residential mortgage-backed securities
During the second quarter of 2008, leveraged finance commitments declined 47% to $7.5 billion, down from approximately $14.2 billion at the end of the first quarter, due almost entirely to sales and syndications. Net write-downs related to these exposures were $348 million during the quarter.
During the second quarter of 2008, credit valuation adjustments related to the firm’s hedges with financial guarantors were negative $2.9 billion, including negative $1.4 billion related to U.S. super senior ABS CDOs.
The investment bank also confirmed it will sell its 20 per cent stake in Bloomberg for around $4.4bn, and said it was close to a deal to sell a controlling interest in subsidiary Financial Data Services, based on an enterprise value of $3.5bn.