Bloomberg News reports that Merrill Lynch (NYSE: MER) added $2.9 billion to the $5 billion worth of write-offs it had already announced. And it reported a loss of $2.24 billion, or $2.82 a share, compared with net income of $3.05 billion, or $3.17, a year earlier -- this massively exceeds the 45-cent average loss estimate of 17 analysts surveyed by Bloomberg. Now questions are being raised about whether its CEO Stanley O'Neal will get the boot from Merrill's board.
What would be the case for booting O'Neal? He pushed Merrill into the risky area of subprime mortgages to get higher returns. While some of his lieutenants have paid the price for their supervision of this risk, Merrill's $7.9 billion cost -- which exceeds Citigroup Inc.'s (NYSE: C) $6.5 billion -- is 58% more than Merrill had projected a mere two weeks ago. And it calls into question O'Neal's judgment since he clearly did not anticipate the severity of the decline in the credit markets since July, after late mortgage payments from borrowers with poor credit histories surged.
And Merrill's problems don't end with subprime. The credit markets also forced Merrill to write down the value of leveraged buyout loans that the firm had to make after investors refused to finance them. Those devaluations totaled $463 million, after underwriting fees.
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