The US stockmarket is in bear territory after Merrill Lynch joined Citigroup in reporting a sea of red ink in its fourth quarter accounts, saying it lost $US9.8 billion in the last three months of 2007 following more than $US16.6 billion investment write-downs and losses.
It was the firm's worst ever performance in nearly 100 years of existence.
Combined with a worse than expected set of figures for December's housing starts and building permits, the Merrill news helped push Wall Street deeply into the red on the day.
Helping add to the sense of gloom was a key manufacturing survey showing activity in parts of the US East Coast fell to their lowest level in six years.
Wall Street's swoon came despite US Federal Reserve chairman, Ben Bernanke telling the US Congress that he agreed with the shape of proposed financial stimulus packages worth up to $US150 billion for the economy.
It was a replay of two days ago when news of a slump in retail sales and Citigroup's huge loss and write-downs shook confidence on Wall Street and around the world.
The Dow was off more than 200 points and the US stockmarket is close to moving into bear territory which is a fall of 20% or more from its peak. Wall Street peaked last November at 14,198 and the market is now more than 2800 points down after today's slump.
Citigroup reported a loss of $US9.8 billion after write-downs and losses of $US18.1 billion.
Merrill's write-downs included $US3.1 billion related to contracts Merrill entered into with bond insurance groups to hedge against losses.
Such groups are now under heavy pressure, raising doubts about the extent of the insurance they provide and two of the big names in this area, MBIA and AMBAC fell heavily today amid rising fears they could default, despite raising new capital in recent months.
This sector is being re-examined by rating agencies and should their credit ratings fall, it could trigger more unwanted losses for investment banks because their triple A ratings are vital for the banks issuance of bonds, especially municipal bonds which is a huge industry in the US.
Merrill also cut the value of asset-backed collateralised debt obligations on its books by a huge $US11.5 billion. CDOs are pools of mainly subprime housing mortgages and corporate bonds that are cut into tranches of varying risk and return and sold onto investors.
Merrill was the biggest issuer of mortgage-backed CDOs. It was left with billions of dollars of unsold securities when the credit crunch hit last August after subprime mortgage defaults rose sharply.
Merrill's losses last year led to the replacement of Stan O'Neal as chief executive by John Thain, former New York Stock Exchange chairman and President of Goldman Sachs.
He has pushed quickly to shore up Merrill's damaged balance sheet, raising nearly $US12.6 billion in new capital over the past month from governments and individual investors, mainly in the Middle East and Asia.
Merrill's global markets and investment banking unit posted a loss of $US15.9 billion, driven by the $US11.5 billion write-down. The brokerage firm said its net exposure to US asset-backed CDOs had dropped from $US15.8 billion to $US4.8 billion, suggesting that the worst of the write-downs could be over.
The new housing starts news sent a message that the worst is not over, but the economy needs it to happen to start cutting the ever growing backlog of unsold houses.
US Government figures showed that new residential building in the US last year suffered its biggest drop in nearly three decades, according to government data published on Thursday that highlighted the dramatic downturn in US housing.
New house starts fell to an annual rate in December of 1,006,000 – its lowest since 1991 (when the US economy was much smaller), down 14% from November and 38% from the same month in 2006.
Permits issued to build new homes, which signal future construction trends, fell 8% in December, and were off 34% on December of 2006.
Both were much worse than forecast by economists.
The plunge in starts was driven by a 40% drop in the volatile multi-family sector (units or apartments)- single-family starts dropped by only 2.9%.
Meanwhile it was another unwanted landmark for the Australian share market yesterday.
It closed lower yesterday for the ninth consecutive day, following Wall Street's lead to the letter.
After Wall Street's slump overnight, our market will be down for a 10th straight day today.
The Down battled higher, then lower, then a touch into the black, before falling, while the Standard & Poor's 500 and Nasdaq were weak for most of the session.
It was the first time in more than 12 years that the Australian market had fallen for nine days in a row and came after a day in which investors took the market higher in the morning and early afternoon, only to run out of confidence or interest as the day wore on.
The benchmark ASX200 index was down 13.6 points at 5,796.1, while the broader All Ordinaries shed 13.8 points to 5,857.
Thankfully the falls were not as dramatic as Wednesday's 2.5% plunges/
The last time the Australian share market experienced nine consecutive negative closes was in September 1995.
Lower commodity prices hit resource stocks, while a weaker tone in China also continued to the loss of confidence during the day.
Solid jobs figures for December were ignored: suggestions this could mean an interest rate rise next month were noted and then ignored as well.
BHP Billiton closed down $1.02 to $36.50 for its second $1 plus fall in as many days and Rio Tinto shed $4.63, or 3.55 per cent, to $118.60.
The suggestion is that BHP won't launch a formal bid for Rio.
Among the major banks, the National Australia Bank jumped 63 cents to $35.37
