Merrill Lynch Reports Third Quarter 2008 Net Loss from Continuing Operations of $5.1 Billion

Business Wire, Oct 16, 2008

NEW YORK -- Merrill Lynch (NYSE: MER) today reported a net loss from continuing operations for the third quarter of 2008 of $5.1 billion, or $5.56 per diluted share, compared with a net loss from continuing operations of $2.4 billion, or $2.99 per diluted share, for the third quarter of 2007. Merrill Lynch's net loss for the third quarter of 2008 was $5.2 billion, or $5.58 per diluted share, compared with a net loss of $2.2 billion, or $2.82 per diluted share, for the year-ago quarter.

Third quarter 2008 net revenues were $16 million, driven by a number of significant items, including:

* Net write-downs of $5.7 billion resulting from the previously announced sale of U.S. super senior ABS CDOs1 and the termination and potential settlement of related hedges with monoline guarantor counterparties

* Net pre-tax gain of $4.3 billion from the previously announced sale of the 20% ownership stake in Bloomberg, L.P.

* Net write-downs of $3.8 billion principally from severe market dislocations in September, including real estate-related asset write-downs and losses related to certain government sponsored entities and major U.S. broker-dealers, as well as the default of a U.S. broker-dealer

* Net gains of $2.8 billion due to the impact of the widening of Merrill Lynch's credit spreads on the carrying value of certain of our long-term debt liabilities, which was similarly impacted by the severe market movements in September

* Net losses of $2.6 billion resulting primarily from completed and planned asset sales across residential and commercial mortgage exposures

Excluding the items listed above, adjusted net revenues were $5.7 billion2 in the third quarter of 2008, down 31% on a comparable basis from the prior-year period, reflective of the challenging operating environment.

Third quarter 2008 net revenues decreased from $380 million in the prior-year period, which included $8.5 billion in net write-downs, primarily related to U.S. ABS CDO and residential mortgage-related exposures, and a $609 million net gain related to the changes in carrying value of certain of our long-term debt liabilities.

The net loss for the third quarter of 2008 was also impacted by certain non-compensation expense items3 including:

* A $2.5 billion non-tax deductible payment to Temasek Holdings related to the July common stock offering

* A $425 million expense, including a $125 million fine, arising from Merrill Lynch's previously announced offer to repurchase auction rate securities (ARS) from its private clients and the associated settlement with regulators

Merrill Lynch's net loss applicable to common shareholders for the third quarter and first nine months of 2008 included $2.1 billion of additional preferred dividends associated with the previously announced exchange of the mandatory convertible preferred stock. See Capital and Liquidity Management for further information.

The net loss from continuing operations for the first nine months of 2008 was $11.7 billion, or $13.16 per diluted share, compared with net earnings from continuing operations of $1.7 billion, or $1.60 per diluted share, in the prior-year period. The first nine months of 2008 net loss and loss per diluted share were $11.8 billion and $13.20, respectively, compared with net earnings of $2.1 billion, or $2.03 per diluted share, for the prior-year period. The first nine months of 2008 net revenues were $834 million compared with $19.4 billion in the prior-year period. The first nine months of 2008 adjusted net revenues were $20.6 billion2, down 25% from the prior-year period on a comparable basis.

Including the impact of this quarter's net loss, at the end of the third quarter of 2008, Merrill Lynch's total common equity increased to $29.8 billion, an increase of 41% or $8.7 billion from the second quarter of 2008. Total stockholders' equity was $38.4 billion at the end of the third quarter of 2008, an increase of 10% or $3.6 billion from the second quarter of 2008. See Capital and Liquidity Management for a more detailed description of this quarter's activities.

Third Quarter and First Nine Months of 2008 Highlights

* Bank of America Corporation agreed to acquire Merrill Lynch & Co. in an all-stock transaction

* Record year-to-date and third highest quarterly revenues in Rates and Currencies, up 27% from prior year-to-date

* Global Equity Linked Products (Derivatives) net revenue growth of 23% sequentially and 14% year-on-year

* Advisory revenues outperformed the market, increasing 12% sequentially; Merrill Lynch also ranked #2 in global announced M&A for the quarter4

* Solid performance in Global Wealth Management despite challenging market environment; FA headcount increased by 240 from a year ago; Net new annuitized assets are up $21 billion year-to-date

* Significant progress in balance sheet and risk reduction; RWA declined by approximately 15% over the quarter

* Substantial sale of $30.6 billion of gross notional amount of U.S. super senior ABS CDOs

* Reductions of 98% of U.S. Alt-A residential mortgage net exposures. Including planned sales, reductions of 56% in non-U.S. residential mortgages and 25% in commercial real estate, excluding First Republic Bank and the U.S. Banks Investment Securities Portfolio