Merrill Lynch lost money for a third successive quarter, will sack around 4,000 staff after $US6.5 billion of write-downs and a 40% drop in investment-banking fees.
The first-quarter net loss of $US1.96 billion compared with earnings of $US2.16 billion a year earlier, which was a record. The company, America’s third biggest investment bank, lost $2.24 billion in the fourth quarter of 2007, a loss that saw CEO Stan O’Neal replaced.
The result started a day when it became apparent to Wall Street that the recession that isn’t, yet, was damaging corporate earnings. the New York Times lost money as ad revenues fell 10%, drug giant Pfizer suffered an 18% fall in earnings because doctors and other users are switching to cheaper generics.
Other companies in the export field did well, but energy firms were weaker with oil off yesterday’s record highs, gold and copper were easier, as were rural commodity prices in Chicago. But rice hit $US1,000 a tonne in Asian markets during the day, up 47% this year.
The Dow finished with a small gain after European markets fell and Asian markets were firmer, except for China which is heading for its biggest ever weekly loss after dropping 3.1% yesterday.
The Australian market was higher, but eased in late trading.
Merrill’s loss, though expected, was worse than forecast and confirms that the US financial sector is not out of the mire of poor subprime loans, dodgy credit derivatives, imploding leveraged loans to business and now worsening credit card and home equity loans.
Wachovia Corp. surprised on Monday with a first-quarter loss of $350 million, while Washington Mutual confirmed its loss of $1.1 billion on Tuesday. Wednesday saw Wells Fargo report a $2 billion profit and record revenue of $10.6 billion. But earnings were down 11% from a year earlier. JPMorgan Chase beat estimates with net income of $2.4 billion on $16.9 billion of revenue. But that was down 49%, on more than $US5 billion of write-offs.
JP Morgan yesterday raised $US6 billion in new capital which will help it withstand any problems from the cost of the Bear Stearns rescue.
Investors are bracing for poor results from Citigroup tonight, our time. The bank went on a pre-emptive strike overnight, warning of job and a 20% cut in its cost base. Things must be desperate.
Merrill’s first-quarter write-downs included $US2.6 billion to account for the plummeting value of mortgage-related bonds including collateralized debt obligations. Merrill also cut the value of bond insurance contracts by $US3 billion, and lowered the value of leveraged loans by $US925 million.
Merrill’s revenue dropped 69% to $US2.9 billion in the first three months of 2008 from a year earlier, including a 7% increase to $US3.3 billion at the brokerage unit, the basis for the company’s existence before investment baking and bond trading proved so alluring to former managers.
Trading revenues from fixed-income (bonds, credit derivatives etc) was a negative $US3.38 billion and equity-trading revenue was $US1.88 billion, down from $US2.39 billion a year earlier. Debt underwriting generated $US231 million in revenue, down 61%, while stock underwriting revenue fell 45% to $199 million.
The latest job cuts announced are in addition to about 1,000 previously announced. The new cuts will cost $US350 million in the second quarter but claims it will save $800 million a year.
Australia’s ASX 200 Index rose 48.7 points to 5,519.0, taking its total gains in the past three sessions to 3.3%. But the futures market had up set to rise 3% at the start of trading after Wall Street’s solid gains, but confidence faded, despite more stories about BHP being ready to improve its offer for Rio Tinto.
Resource firms rose after oil hit a fresh record high over $US115 a barrel, while metals prices also rose.
BHP Billiton rose 1.4% to $43.39 and Rio Tinto, gained 3.8% to a four-month high of $146.00.
Among financial firms, Macquarie Group rose 1.8% to $59.01 and Commonwealth Bank of Australia was up 1% at $42.46.
And markets will get a kick along from the better than expected first quarter result from Google.
It revealed a better than expected first quarter result after trading ended Thursday, US time. The news will settle fears that the internet leader has been hit by the recession.
Google shares rose 17% in after hours trading, even though there was a small fall in so-called ‘click-throughs. Google shares had fallen more than 35% in the March quarter on fears its revenues and earnings would be lower as its share of ad click throughs fell.
But it reported a 30% rise in first-quarter net profit income to $US1.31 billion. And leaving aside one off items, the internet giant said net profit was $US1.54 billion.
Sales jumped 42% to $US5.2 billion. or a net $US3.7 billion after deducting advertising sales that Google shares with partners.
Google reported its aggregate paid clicks increased 4% from the fourth quarter of 2007 and up 20% from a year ago. That’s down from sequential growth of 9% in paid clicks in the December quarter and a 30% rise in 2007.Google says the slowdown is due to its new policy of eliminating low quality of false ads on its system and concentrating on genuine paying customers.
