Merrill Lynch Posts $5.2 Billion Loss

Merrill Lynch ( MER) Thursday reported a loss from continuing operations of $5.1 billion, or $5.56 a share, compared with a year-earlier loss from continuing operations of $2.4 billion, or $2.99 a share.

The net loss in the quarter was $5.2 billion, or $5.58 a share. A year earlier the firm reported a loss of $2.2 billion. Analysts surveyed by Thomson Reuters expected Merrill to report a loss of $5.22 a share in the third quarter.

Merrill said results in the latest quarter included a $2.5 billion nontax deductible payment to Temasek Holdings related to a common stock offering, and a $425 million expense, including a $125 million fine, from Merrill's settlement with regulators over auction rate securities.

Including the third-quarter loss, Merrill said its total common equity at the end of the third quarter increased to $29.8 billion, up 41% from the second quarter of 2008. Total stockholders' equity was $38.4 billion at the end of the third quarter, a sequential increase of 10%.

Net revenue in the third quarter was $16 million, as the company took a number of writedowns during the quarter. Excluding items, adjusted net revenue was $5.7 billion, down 31% from a year earlier.

Threatened with extinction as the market turned swiftly against the stand-alone investment banking model, Merrill struck a deal to sell itself to Bank of America ( BAC) for $29 a share on Sept. 15, the same day Lehman Brothers filed for Chapter 11 bankruptcy protection.

Though Merrill's stock has reached and even occasionally surpassed the $29 price since the deal was announced, it has mostly traded significantly lower than that on concerns the deal could fall apart or be renegotiated on less favorable terms for Merrill shareholders. Merrill shares hit a low of $12.12 on Oct. 9.

Assuming the deal does close, Bank of America will have the opportunity to harness its retail banking network to Merrill's formidable brokerage apparatus. Bank of America also will face significant integration challenges, however, such as holding onto talented brokers and investment banking executives, managing a more internationally-focused business, and avoiding further deterioration in Merrill's loan portfolio, which has already seen billions in writedowns.

Merrill CEO John Thain , the former Goldman Sachs ( GS) highflyer who left NYSE Euronext ( NYX) last year to take the helm at the ailing brokerage giant, surprised many on Wall Street when he agreed to stay at Bank of America as one of a handful of executives reporting to CEO Ken Lewis.

In contrast to former Lehman CEO Richard Fuld and former Bear Stearns CEO Jimmy Cayne, who many see as having missed opportunities to save their shareholders from getting wiped out, Thain has drawn widespread plaudits for his handling of Merrill's final act. He is an obvious candidate to succeed Lewis, and his name will doubtless be floated virtually any time a post opens up to lead a major financial company, or as a possible Treasury secretary should John McCain win the White House.

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