Merrill Hit With $9.8B Mortgage-Linked Loss

Merrill Lynch took a $9.8 billion loss for the fourth quarter -- and a $7.8 billion net loss ($8.6 billion from continuing operations) for all of 2007 -- due primarily to an $11.5 billion U.S. mortgage-related writedown in the last three months of the year that produced results far below analysts' estimates. In addition to the writedowns on the mortgage-related assets themselves, Merrill took credit valuation adjustments of $2.6 billion related to hedges with financial guarantors on collateralized debt obligations with mortgage exposure. Analysts at Sandler O'Neill Research said that, while the writedowns "were significant and larger than our expectations, we actually expect that some investors may be disappointed [that Merrill] did not take a larger writedown, given more aggressive actions at some of its competitors and in the wake of ... significant capital raises." The results may have implications for the company's remaining wholesale mortgage business. Merrill also announced the appointment of Noel B. Donohoe as co-chief risk officer. Mr. Donohoe was previously head of firmwide risk at Goldman Sachs from 1994 to 2005. Merrill Lynch can be found online at http://www.ml.com.