Merrill Lynch Posts Worst Quarter in Its History

By Tim McLaughlin

NEW YORK (Reuters) - Merrill Lynch & Co Inc MER.N reported about $16 billion in mortgage-related write-downs and adjustments on Thursday in the worst quarter of the company's history.

Shares of the world's largest brokerage fell more than 9 percent as investors worried about more write-downs and exposure to capital-strapped bond insurers.

The stock's 49 percent decline over the past year has slashed nearly $42 billion from Merrill's peak market capitalization of $84.7 billion in late January 2007.

The start of a booming year for investment banking fees and big bets on subprime mortgages ended in dismal fashion. Merrill's fourth-quarter net loss was $9.8 billion, or $12.01 a share, compared with year-earlier profit of $2.3 billion, or $2.41 a share.

"The loss seems higher than expected," said Peter Boockvar, an equity strategist at Miller Tabak & Co in New York. "The write-down, I guess, was large, about in line. But we knew that it was going to be bad."

The approximately $16 billion write-down, with credit adjustments, compares with analysts' expectations of $10 billion to $15 billion.

For 2007, Merrill lost about $8 billion on second-half write-downs and adjustments of about $24 billion. Lax risk management led to the ouster of Stan O'Neal as chief executive in late October.

CTW Investment Group, a union pension fund adviser, wrote a letter to Merrill board members that questions the role they played in overseeing top management.

"In particular, we question whether finance committee director John Finnegan's long personal and business relationship with former CEO Stanley O'Neal ... compromised his willingness to rein in Mr. O'Neal's aggressive risk and outsized compensation," CTW Executive Director William Patterson wrote.

Finnegan, who is chairman and CEO of Chubb Corp, worked with O'Neal during their days at General Motors Corp. He is chairman's of Merrill's compensation committee and also serves on the finance committee.

Recently named CEO John Thain said there are no current plans to make any changes on Merrill's board.

During a conference call, Thain said Merrill would ease risk-taking, but has enough capital to move forward after $12.8 billion in infusions from U.S. and foreign investors.

But Thain, who called the fourth-quarter results "unacceptable," said he could not promise that the company will avoid further write-downs on subprime mortgage-related positions.

There will be no dramatic job cuts, he said, and the company is not interested in selling its stakes in Bloomberg LP and asset manager BlackRock Inc (BLK.N).

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