Thain acts to dull bad credit bets

NEW YORK - John Thain, presiding over his first set of earnings yesterday as the new leader of Merrill Lynch & Co. Inc., cleared the decks with nearly $15 billion of write-downs related to subprime mortgages that led to the largest quarterly loss since the brokerage was founded 94 years ago.

While it was among the most aggressive moves on Wall Street to deal with bad bets on subprime mortgages, Thain was not ready to say the worst of the credit crisis is over.

With a possible recession looming, the world's largest brokerage and other Wall Street investment houses might still be saddled with unforeseen turmoil. While taking steps to minimize future disruptions, Thain remained wary about challenges that face the global financial markets.

"We will continue to take risks - you don't make money if you don't take risk," Thain said. "But the risk will be sized appropriate for the business. Nobody should be taking risks that wipe out the entire annual earnings of a business, and certainly not the entire firm."

That is what happened under former chief executive officer Stan O'Neal, whose heavy bets in mortgage securities backfired as subprime homeowners - those with poor credit histories - defaulted on their loans at an alarming rate. That led Merrill to report yesterday a net loss after preferred dividends of $9.91 billion, or $12.01 a share, compared with a profit of $2.3 billion, or $2.41 a share, a year earlier.

The firm also recorded negative revenue of $8.19 billion, down from revenue of $8.39 billion a year earlier.

The New York brokerage wrote down $11.5 billion from mortgage-backed securities, and an additional $3.1 billion in adjustments to hedge positions on them. A write-down means a company lowers the value of an asset it owns.

Thain said he did not "anticipate further problems of this magnitude" from Merrill's mortgage-related investments.

"There has to be something incredibly bad out there to have this happen again, and our whole goal is to get 2007 behind us," he said.

Merrill Lynch joins rival Wall Street investment houses Morgan Stanley and the Bear Stearns Cos. Inc. in posting losses in the last three months of 2007. Citigroup Inc., the nation's largest bank, reported Tuesday a quarterly loss of almost $10 billion, the largest in its 196-year history.

Also, the Bank of New York Mellon Corp. said yesterday that its fourth-quarter profit tumbled 68 percent to $520 million, or 45 cents a share, because of its exposure to assets backed by mortgages and a tough comparison with the year before, when the bank gained $1.4 billion after unloading its retail operations.

The bank's exposure to the mortgage-backed debt resulted in a $118 million write-down in the 2007 quarter.

Thain said Merrill Lynch planned some layoffs for later this year, though he said they would be a "small number" of the company's 64,200 employees.