Merrill Writedown Mushrooms

Updated from 7:40 a.m.

Merrill Lynch (MER Quote) stunned Wall Street for the second time this month Wednesday with the disclosure that it was forced into a $7.9 billion writedown of bad debt tied to risky mortgages and so-called structured paper.

The announcement marks a turning point in the credit crisis that has consumed investors in recent months and has observers wondering how much more pain will be felt by Merrill's rivals in the brokerage industry. Shares in Wall Street firms fell 1%-2% in early trading as investors braced for Merrill's 10 a.m. EDT conference call.

The announcement comes three weeks after Merrill surprised investors by estimating that its third quarter would swing to a loss under the weight of $4.5 billion in writedowns on certain securities. That was by far the largest hit taken by a Wall Street firm after a summer of turmoil locked up the credit markets and left many financial institutions sitting on hefty losses. ...