Merrill Lynch results walloped by 7.9-billion-dollar mortgage loss

Merrill Lynch, the Wall Street investment bank, said Wednesday 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 & Co. said the charge was "significantly greater" than the 4.5 billion dollars forecast earlier this month.

The charge is due to losses related to collateralized debt obligations (CDOs) and US subprime mortgages, the risky loans given to homebuyers with poor credit histories.

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.

Total revenue for the period fell 94 percent to 577 million dollars, from 9.8 billion in the year-ago period, Merrill said.

Shares of the New York-based investment bank fell 1.36 percent to 66.21 dollars in morning trading.

"It was a bad quarter and worse than anything we would have expected," said Goldman Sachs analyst William Tanona in a research note.

Tanona said that aside from the larger-than-expected writedown, the biggest surprise was Merrill's exposure to CDOs at the end of the quarter, which was about 32 billion dollars. Residential mortgage-backed securities recently have been packaged into CDOs, a type of asset-backed security.

"Although the firm reduced its exposure by more than half, it still retains a very large exposure to this segment of the market," Tanona said. "Given the lack of liquidity in CDOs, we believe it will be tough for Merrill to further reduce its exposure near-term and the firm could become victim to overall market trends in CDOs."