Merrill Lynch Slates 4,000 Job Cuts

Merrill Lynch announced plans to eliminate 4,000 jobs in capital markets and trading this quarter, after reporting a first-quarter loss of $1.96 billion including $6.6 billion in write-downs.

"The firm intends to reduce its headcount from year-end levels by approximately 4,000 employees, or 10 percent, excluding financial adivsors and investment associates," the bank said in its announcement. It expects to save $800 million a year from the job cuts, and will take a restructuring charge of $350 million in the second quarter.

Merrill's full-time work force shrank by 1,100 during the first quarter, ending at 63,100. That decline mostly reflected the winding down of its First Franklin mortgage lending unit and the sale of another lending unit to a finance subsidiary of General Electric, plus a cutback in the number of broker trainees.

It was the bank's third losing quarter in a row. Both revenue and the net loss were worse than analysts' forecasts. In response, Moody's Investors Service said it will review Merrill's A1 debt rating for a possible downgrade, and warned the bank might have to take an additional $6 billion in write-downs.

Chief Executive John Thain didn't echo the cheery predictions of an imminent end to the credit crunch, which a number of his counterparts expressed lately. Speaking on a conference call with analysts, Thain called the first quarter "as difficult a quarter as I've seen in my 30 years on Wall Street," and said the next half-year will continue to be difficult, according to The Wall Street Journal. He did reportedly say he is "optimistic" about prospects for the full year, but didn't go into detail.

Merrill marked down the values of its holdings by $9.7 billion in the first quarter, including $3.1 billion of write-downs that hit the balance sheet but not the income statement. The total included $3.0 billion for hedges placed with now-troubled bond insurers, and $1.5 billion for asset-backed collateralized debt obligations. The write-downs came off the top line, shrinking reported revenue to $2.9 billion, down 69 percent from last year's first quarter. Revenue would have declined 26 percent without the write-downs, Merrill said.

Citing pockets where business remains strong, Merrill said interest-rate products and currencies produced record revenue. Meanwhile, net revenue from investment banking shrank 40 percent as initial stock offerings and leveraged finance deals dried up. Equity trading revenue fell 21 percent. Merrill's global wealth management unit recorded 8 percent more revenue than in the 2007 quarter, but pre-tax earnings were 8 percent less.