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Merrill Lynch loses $1.96 billion in first quarter

NEW YORK -- Merrill Lynch & Co., the investment bank, posted a loss of nearly $2 billion yesterday and announced that it would cut about 4,000 jobs by the end of the year. The layoffs include 1,100 jobs - mostly in mortgage-related businesses - that have been cut this year.

The bank reported worse-than-expected earnings for the first quarter, including $6.5 billion in write-downs and adjustments to assets in its mortgage, leveraged finance and other assets. The write-downs bring Merrill's total in the past three quarters to more than $30 billion.

Merrill said in its earnings release that it had lost $1.96 billion, or $2.19 a share, after its write-downs, in the first three months, down from a profit of $2.106 billion, or $2.26 a share, in the corresponding period a year ago.

Analysts surveyed by Bloomberg News expected a $1.79-a-share loss.

Revenue, including interest and dividends, was $2.9 billion - down 69 percent from a year ago.

"Merrill Lynch's and other investment banks' write-downs are a stark reminder that we are not out of the woods yet in terms of the credit crisis," said Octavio Marenzi, head of financial consultancy Celent LP.

The job cuts will come from the company's global markets and investment banking division, which also includes fixed income, currency, commodity and equity trading. That part of the bank recorded a pretax loss of $4 billion this quarter and negative revenues of $690 million. The layoffs will save $800 million a year in compensation expenses, the bank said.

Bank executives warned yesterday that Merrill could continue to struggle as the broader economic downturn continues.

"We are planning for a slower and more difficult next couple of months and probably next couple of quarters," John A. Thain, chairman and chief executive of Merrill Lynch, said on a conference call with analysts.

But Thain said the bank is on solid footing; it has raised more than $12 billion in fresh capital, including some from sovereign wealth funds that manage funds for foreign governments.

Meanwhile, Moody's Investors Service placed the bank's long-term debt on review for a possible downgrade. The ratings agency predicted that Merrill Lynch would be forced to lower the value of its mortgage assets known as collateralized debt obligations by an additional $6 billion. Merrill marked down the values of bonds and other assets it owned by $27.4 billion last year, mostly related to the subprime mortgage market.

"Bigger is better with respect to mortgage-related security write-downs," said Meredith Whitney, the banking analyst at Oppenheimer & Co., who has a negative rating on Merrill. "The market wants to see it over and done with."

In the bank's earnings call, executives said that March had been a significantly more difficult month in the markets than January or February.

Merrill's network of 16,660 financial advisers across the country will not be reduced, the company said. Those people work in the wealth management unit, which was profitable this quarter with earnings of $730 million.

Even as Merrill has been writing down the value of its investments in mortgage securities, some bank traders have been purchasing additional Alt-A bonds, blocks of mortgage loans with credit rated between prime and subprime levels. Merrill executives said on the earnings call that those bonds were purchased at large discounts because of forced liquidations.

The Associated Press contributed to this article.

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