Merrill Lynch reported a $4.65 billion loss during its second quarter on Thursday, surpassing the expectations of the most pessimistic analysts and underscoring the continued toll of the subprime mortgage meltdown even as economists and policymakers turn their attention to other economic threats such as inflation. Moody's Investors Service cut Merrill's credit rating and the firm's shares fell as much as 7 percent in Germany. The net loss of $4.65 billion, or $4.97 a share, exceeded the firm's $1.96 billion first-quarter loss, while rivals Goldman Sachs Group Inc. and Morgan Stanley stayed profitable. Merrill earned $2.14 billion in the second quarter of 2007, before the credit contraction led to losses that now stretch over 12 months. It is the fourth consecutive quarter in the red for Merrill, the nation's third-largest investment bank, and the firm has now piled up $19 billion in losses over the past year because of the credit crisis and its exposure to the troubled mortgage industry. Merrill's losses continue despite upbeat comments earlier this year by chief executive John Thain, who was quoted in the Wall Street Journal in January as saying that the credit crisis was “for the most part behind us.” In April, after Merrill reported a $2 billion loss in the first quarter, Thain maintained that optimism, saying the firm had sufficient capital for “the foreseeable future” and would not have to raise more money from the equity markets. Thain, who was hired late last year to turn around the firm's fortunes, said yesterday that the company would cut jobs and raise fresh capital by selling about $8 billion of assets. “They are raiding the crown jewels to raise capital. This indicates to me that they have some serious problems,” said Doug Roberts, an analyst with New Jersey-based Channel Capital Research. “Just when you think they can't write off any more, they exceed estimates.” Merrill's earnings report demonstrated the uneven impact of the credit crisis on the financial system. Some financial firms, such as Wells Fargo, Morgan Stanley and Goldman Sachs have done well.
