Stanley O'Neal, chairman and CEO of Merrill Lynch & Company, is seen in New York in this November 1, 2006 photo. O'Neal said the company continues to face uncertainty on the impact of its mortgage-related investments.

Merrill Lynch & Company Inc on yesterday reported its first loss in six years after writing down US$7.9 billion of bad bets on risky subprime mortgages and related securities.

"The bottom line is we got it wrong by being overexposed to subprime," Merrill Lynch Chairman and Chief Executive Stan O'Neal said on a conference call.

"And we suffered as a result of an unprecedented liquidity squeeze and deterioration in that market. No one, no one is more disappointed than I am in that result."

Merrill Lynch shares slid 5.44 per cent to a two-year low, hurt further by Standard & Poor's ratings cut on the investment bank's "startling announcement".

Stock down

The stock, trading at US$63.47 on the New York Stock Exchange, is down 32 per cent this year.

Merrill Lynch's third-quarter net loss was US$2.3 billion, or US$2.85 a share, from continuing operations, compared with a profit of US$3 billion, or $3.14 a share, a year earlier.

"There's not much to like about this performance," Credit Suisse analyst Susan Roth Katzke said in a research note.

More write-downs could be coming if the world's largest brokerage further cuts the value of its remaining US$20.9 billion exposure to collateralised loan obligations and subprime mortgages.

O'Neal said the company is still working to resolve the impact of loans to people with weak credit.

"I'm not going to talk around the fact that there was some mistakes that were made," O'Neal said.

"I am accountable for the mistakes as I am accountable for the performance of the firm overall and my job, our job, the leadership team's job, is to address where we went wrong."

Merrill was the only big Wall Street firm to post a third-quarter loss. And its write-downs - before hedges - were bigger than the combined US$3.6 billion in write-downs and charges recorded by rivals Goldman Sachs Group Inc, Bear Stearns Companies Inc, Morgan Stanley and Lehman Brothers Holdings Inc.

"This is a bloodbath for certain. It speaks very poorly to Merrill's risk management practices," said Bill Fitzpatrick, an analyst at JohnsonFamily Funds in Racine, Wisconsin, which invests US$1.8 billion but does not own Merrill shares.

"Clearly, heads are going to roll, and I wouldn't be surprised to see meaningful near-term layoffs," he said.

Conservative assumptions

The US$7.9 billion of write-downs was more than the US$5.5 billion Merrill forecast earlier this month. After re-examining its positions on collateralised debt obligations, it used more conservative assumptions for valuing those assets.

Merrill said the net write-down figure does not include a US$967 million write-down, before fees, of commitments that include loans for takeovers.

O'Neal cited continued uncertainty in the market for risky subprime mortgages as defaults on those loans continue to rise and sap the strength of the U.S. economy.

Camilla Petersen, an analyst who covers financial stocks for Atlantic Equities in London, called the losses in Merrill's fixed-income portfolio "pretty spectacular".

"I think it shows two things: sloppy risk management and very aggressive risk taking," Petersen said. "They've tried to diversify away from their core strengths, which are equities, investment banking and wealth management, all of which did very well during the quarter."

A man leaves a Merrill Lynch office in New York in this July 17 photo. Merrill Lynch & Company, the world's biggest brokerage, said yesterday that the summer's credit crisis triggered a bigger-than-expected US$7.9 billion write-down during the third quarter. - AP