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| Merrill Lynch posts $7.8bn loss | Merrill Lynch posts $7.8bn loss |
| (39 minutes later) | |
| Wall Street banking giant Merrill Lynch has unveiled a huge loss for 2007, crippled by exposure to risky investments in the US housing market. | Wall Street banking giant Merrill Lynch has unveiled a huge loss for 2007, crippled by exposure to risky investments in the US housing market. |
| It made a net loss of $7.8bn (£3.9bn) in the 12 months to the end of December from a net profit of $7.5bn in 2006. | It made a net loss of $7.8bn (£3.9bn) in the 12 months to the end of December from a net profit of $7.5bn in 2006. |
| The loss includes a massive $14.1bn write-down on failed investments related to sub-prime mortgages. | The loss includes a massive $14.1bn write-down on failed investments related to sub-prime mortgages. |
| Merrill Lynch is the latest big bank to reveal losses related to the crisis in the US mortgage market. | Merrill Lynch is the latest big bank to reveal losses related to the crisis in the US mortgage market. |
| Earlier this week, Citigroup and JP Morgan also announced write-downs because of their exposure to the crisis in the sub-prime loan sector, which focused on consumers with poor or non-existent credit histories. | Earlier this week, Citigroup and JP Morgan also announced write-downs because of their exposure to the crisis in the sub-prime loan sector, which focused on consumers with poor or non-existent credit histories. |
| JP Morgan Chase said its earnings for the last three months of 2007 fell 34%, while Citigroup reported a $9.83bn net loss for the last three months of 2007. | JP Morgan Chase said its earnings for the last three months of 2007 fell 34%, while Citigroup reported a $9.83bn net loss for the last three months of 2007. |
| 'Unacceptable' | 'Unacceptable' |
| In the last three months of 2007 alone, Merrill chalked up losses of $9.83bn - the biggest quarterly loss in its history. | In the last three months of 2007 alone, Merrill chalked up losses of $9.83bn - the biggest quarterly loss in its history. |
| The previous chief executive, Stan O'Neal, stepped down in October because of the bank's poor performance. | The previous chief executive, Stan O'Neal, stepped down in October because of the bank's poor performance. |
| Having lost all that financial capital, the risk for Merrill is that its most valuable human capital - those execs untainted by sub-prime - will flee Robert PestonBBC Business Editor | Having lost all that financial capital, the risk for Merrill is that its most valuable human capital - those execs untainted by sub-prime - will flee Robert PestonBBC Business Editor |
| New boss John Thain said while the firm's performance was "clearly unacceptable", Merrill had been able to strengthen its balance sheet over the last few weeks. | New boss John Thain said while the firm's performance was "clearly unacceptable", Merrill had been able to strengthen its balance sheet over the last few weeks. |
| "I don't think you should anticipate any further problems of this magnitude," Mr Thain said. | "I don't think you should anticipate any further problems of this magnitude," Mr Thain said. |
| "There would have to be something incredibly bad out there to have this happen again, and our whole goal is to get 2007 behind us." | "There would have to be something incredibly bad out there to have this happen again, and our whole goal is to get 2007 behind us." |
| Mr Thain is the former president of Goldman Sachs, one of the few Wall Street firms to have so far come through the sub-prime crisis largely unscathed. | Mr Thain is the former president of Goldman Sachs, one of the few Wall Street firms to have so far come through the sub-prime crisis largely unscathed. |
| Lifeline | Lifeline |
| BBC Business Editor Robert Peston said that Merrill has only survived thanks to lifesaving capital from the cash-rich economies of Asia and the Middle East. | BBC Business Editor Robert Peston said that Merrill has only survived thanks to lifesaving capital from the cash-rich economies of Asia and the Middle East. |
| MAIN SUB-PRIME LOSSES SO FAR Merrill Lynch: $22.1bnCitigroup: $18bn UBS: $13.5bn Morgan Stanley $9.4bn HSBC: $3.4bnBear Stearns: $3.2bn Deutsche Bank: $3.2bn Bank of America: $3bnBarclays: $2.6bn Royal Bank of Scotland: $2.6bn Freddie Mac: $2bnJP Morgan Chase: $3.2bn Credit Suisse: $1bn Wachovia: $1.1bn IKB: $2.6bn Paribas: $197mSource: Company reports Timeline: How the sub-prime crisis unfolded | |
| Merrill Lynch said on Tuesday it had won fresh backing totalling $6.6bn from the Kuwait Investment Authority, the Korean Investment Corporation, a private Saudi Arabian fund and other investors. | Merrill Lynch said on Tuesday it had won fresh backing totalling $6.6bn from the Kuwait Investment Authority, the Korean Investment Corporation, a private Saudi Arabian fund and other investors. |
| Rivals Citigroup, UBS and Morgan Stanley have raised capital from similar sources. | Rivals Citigroup, UBS and Morgan Stanley have raised capital from similar sources. |
| The BBC's business editor said the damage to Merrill was not just financial. | The BBC's business editor said the damage to Merrill was not just financial. |
| "Having lost all that financial capital, the risk for Merrill is that its most valuable human capital - those executives untainted by sub-prime - will flee," he said. | "Having lost all that financial capital, the risk for Merrill is that its most valuable human capital - those executives untainted by sub-prime - will flee," he said. |
| Widespread woes | Widespread woes |
| Banks are struggling to calculate how much their investments in assets backed by sub-prime mortgages are actually worth, which is why they are reporting massive write-downs. | Banks are struggling to calculate how much their investments in assets backed by sub-prime mortgages are actually worth, which is why they are reporting massive write-downs. |
| "It is a shock to the system, they are trying to get as much transparency as possible about their subprime exposure," said Mark Durling at Brewin Dolphin Securities. | "It is a shock to the system, they are trying to get as much transparency as possible about their subprime exposure," said Mark Durling at Brewin Dolphin Securities. |
| "They're being ultra-conservative here." | "They're being ultra-conservative here." |
| During the US housing boom, the sub-prime market expanded significantly. | During the US housing boom, the sub-prime market expanded significantly. |
| But a series of US interest rate rises over two years meant many sub-prime borrowers could no longer afford their monthly payments, causing them to default on loans. | But a series of US interest rate rises over two years meant many sub-prime borrowers could no longer afford their monthly payments, causing them to default on loans. |
| Banks had packaged up these loans into financial instruments known as collateralised debt obligations and sold them on to investors. | Banks had packaged up these loans into financial instruments known as collateralised debt obligations and sold them on to investors. |
| Demand for CDOs dried up as the scale of defaults emerged, leaving banks nursing huge losses. | Demand for CDOs dried up as the scale of defaults emerged, leaving banks nursing huge losses. |
| Merrill was among the largest creators of such securities. | Merrill was among the largest creators of such securities. |