Merrill Lynch (NYSE: MER) is already down over 3% before the bell to just above $65 and could easily make a new 52-week low at the open.

Earnings for the third quarter were bloody and there is no guarantee that this was the end of it. The big brokerage reported a net loss from continuing operations for the third quarter of $2.3 billion, or $2.85 per share, significantly below net earnings of $2.22 in the second quarter and $3.14 a year earlier.

Third quarter 2007 total net revenues of $577 million decreased 94% from $9.8 billion in the prior-year period and were down 94% from $9.7 billion in the second quarter.

The sub-prime mess hit Merrill especially hard. Third quarter 2007 results reflect significant net writedowns and losses attributable to Merrill Lynch's Fixed Income, Currencies & Commodities business, including writedowns of $7.9 billion across CDOs and U.S. sub-prime mortgages, which are significantly greater than the incremental $4.5 billion write-down Merrill Lynch disclosed at the time of its earnings pre-release.

As The Wall Street Journal points out, CEO Stan O'Neal sent a memo in July to reassure Merrill employees that the firm's risk level was under control. This was just as the fixed income markets were entering their worst period of turmoil in years. Mr. O'Neal may now regret having pushed the "send" button on that one.

No matter what becomes of Merrill's senior management in the job security department, the market is left asking whether there is another shoe to drop. With little end in site to mortgage problems and a moribund LBO environment, there may be more bad news to come.

Douglas A. McIntyre is an editor of 247wallst..com.

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