Merrill Lynch Reels from $8.4 Bln Write-Down

By Tim McLaughlin

NEW YORK (Reuters) - Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) reported on Wednesday the biggest quarterly loss in its history after writing down $8.4 billion, mostly from bad investments related to risky subprime mortgages.

"The bottom line is we got it wrong by being overexposed to subprime," Merrill Lynch Chairman and Chief Executive Stan O'Neal said on a conference call. "And we suffered as a result of an unprecedented liquidity squeeze and deterioration in that market. No one, no one is more disappointed than I am in that result."

Merrill was the only big Wall Street firm to post a third-quarter loss. And its write-downs, before hedges, were bigger than the combined $3.6 billion in write-downs and charges recorded by rivals Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), Bear Stearns Cos Inc BSC.N, Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers Holdings Inc LEH.N.

"This is a bloodbath for certain. It speaks very poorly to Merrill's risk management practices," said Bill Fitzpatrick, an analyst at JohnsonFamily Funds in Racine, Wisconsin, which invests $1.8 billion but does not own Merrill shares.

"Clearly, heads are going to roll, and I wouldn't be surprised to see meaningful near-term layoffs," he said.

The size of Merrill's write-down was significantly higher than the $5.5 billion it forecast earlier this month.

Merrill Lynch shares closed at a two-year low, down 5.8 percent at $63.22 on the New York Stock Exchange. All three major credit rating agencies cut their ratings on Merrill Lynch, with Standard & Poor's calling the company's loss "startling."

The stock is down 32 percent while the Amex Securities Broker Dealer Index .XBD is off 5.6 percent.