Merrill Lynch to cut 4,000 jobs after $6.5bn writedown

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Merrill Lynch, the world’s largest stockbroker, is to cut 4,000 jobs after writing-off a further $6 billion (£3 billion) on toxic assets and making its third consecutive quarterly loss.

The broker, which has already written off $24 billion since the sub-prime mortgage crisis broke last year, said its first-quarter net loss was $1.96 billion compared with net profit of $2.16 billion in the first three months of 2007. Analysts had estimated a loss of $1.72 billion. Over the same quarter, revenues plunged by 69 per cent to $2.9 billion.

Merrill Lynch has reduced its staff numbers by 1,100 to 63,100 employees during the first quarter. However, it will cut numbers by a further 10 per cent by reducing support staff as well as employees in markets and investment banking where fees fell by 40 per cent in the first quarter.

Despite the losses, John Thain, chairman and chief executive at Merrill Lynch, maintained that the brokerage remained "well-capitalised"

In December, Merrill Lynch raised $7.5 billion in cash to shore up its finances by selling a near 10 per cent stake for $6.2 billion to two investors – Temasek Holdings, the Singaporean state-run fund, and Davis Selected Advisors, an American fund manager. It raised the remaining sum by selling part of its lending business to GE Capital.

Commenting on today's results, Mr Thain said: "Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment."

The first-quarter write-downs included $2.6 billion to account for the falling value of mortgage-backed securities, such as collateralised debt obligations, or pools of bonds.

Merrill Lynch is currently being investigated by the US Securities and Exchange Commission (SEC) into how the bank accounted for its sub-prime mortgage investment portfolio. At the same time, federal prosecutors opened a criminal investigation into the Wall Street firm.

The SEC had been scrutinising Merrill Lynch informally since October to establish whether the brokerage knew more than it revealed to shareholders about the value of its sub-prime investments before announcing its third-quarter results.

Prior to announcing its third quarter results, the bank said it expected write-downs on its assets to top $5 billion. In fact, Merrill Lynch wrote-off $8.4 billion, resulting in a $2.24 billion loss that cost Mr Thain's predecessor, Stan O’Neal, his job. In the fourth quarter, $16 billion of write-downs left Merrill with an overall loss of $9.8billion for the period.

The bank revealed today that it reduced the value of bond insurance contracts by $3 billion, and lowered the value of leveraged loans, made to finance private equity deals, by $925 million.

Merrill revealed its results a day after JPMorgan announced $5.1billion of first quarter write-downs and provisions and gave warning that its credit-related losses would probably continue to grow through the remainder of the year, or beyond. Citigroup is due to report its first quarter results tomorrow.