ETF News

UPDATE 2-Merrill Q4 loss $15.84 bln, has material weakness

(Adds material weaknesses, financial details and background on merger throughout)

NEW YORK, Feb 24 (Reuters) - Merrill Lynch & Co said on Tuesday it lost $15.84 billion in the fourth quarter, about $533 million more than the loss previously estimated by Bank of America Corp BAC.N.

In its annual report filed with the U.S. Securities and Exchange Commission, Merrill also revealed material weaknesses in its controls over financial reporting as of the end of its fiscal year on Dec. 26, 2008.

Merrill’s fourth-quarter loss equaled $9.95 per share, the report showed. Bank of America had on Jan. 16 estimated that Merrill lost $15.31 billion in the fourth quarter.

For all of 2008, Merrill lost $27.61 billion, or $24.87 per share, amid big writedowns and investment losses on collateralized debt obligations and a variety of other risky securities.

Merrill agreed to be acquired by Bank of America last Sept. 15, the same morning that Lehman Brothers Holdings Inc LEHMQ.PK went bankrupt, after a weekend of hasty talks.

Bank of America later threatened to back out of the merger as it became clear that Merrill’s losses were soaring, but said U.S. regulators pushed it to complete the merger. The Jan. 1 closing created the largest U.S. bank by assets.

The Charlotte, North Carolina-based bank now faces many shareholder lawsuits over the merger, and in mid-January got a government bailout to help it absorb losses on $118 billion of troubled assets. Bank of America has accepted $45 billion of government aid since October.

New York Attorney General Andrew Cuomo, meanwhile, is conducting a probe into $3.6 billion of executive bonuses awarded by Merrill just before the closing.

John Thain, Merrill’s former chief executive, was expected on Tuesday to provide more testimony to Cuomo’s office about the bonuses. Bank of America Chief Executive Kenneth Lewis has received a subpoena to testify before Cuomo’s investigators.

According to the annual report, Merrill had material weaknesses related to a failure to properly test measurements used to value intercompany swaps, and a failure to account properly for some hedging positions, including a “single material hedge relationship” begun in the fourth quarter.

Merrill has corrected the problems, and has a goal of eliminating the material weaknesses this quarter, the report said.

Lewis ousted Thain as head of investment banking and wealth management on Jan. 22. Brian Moynihan, a top Bank of America executive, replaced Thain.

Bank of America shares closed Tuesday up 82 cents, or 21 percent, at $4.73. Federal Reserve Chairman Ben Bernanke’s comments that suggested nationalization of big banks was not at hand led to sharp gains for bank stocks.

But Bank of America’s shares are down 86 percent since the Merrill acquisition was first announced. (Reporting by Jonathan Stempel; Additional reporting by Dan Wilchins; Editing by Gary Hill and Tim Dobbyn)