Because of the transactions, Merrill expects to record a total pretax writedown in the third quarter of roughly $5.7 billion, including the $4.4 billion for the loss on the sale of the CDOs. The company will also take a $500 million loss on the termination of the hedges with XL Capital and a maximum $800 million loss on the potential settlement of other hedges.
Also in the third quarter, Merrill will likely record an expense of $2.5 billion related to a reset payment to Temasek and $2.4 billion of additional dividends as part of a plan to exchange certain existing mandatory convertible preferred stock for common stock.
Shares of Merrill initially fell more than 5% in after-hours trading, but then erased the bulk of the losses. Recently, Merrill was down 0.3% at $24.25. In the regular session, Merrill dropped 11.6% to $24.33.
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