WALL STREET - Credit flu worsens for BofA, Merrill - The bank will lay off 3,000 workers and the brokerage takes a $7.9-billion write-down.
NEW YORK — Wall Street's pain from the housing slump and credit crunch intensified Wednesday as Bank of America Corp. announced layoffs and Merrill Lynch & Co. recorded $3.4 billion more in mortgage-related losses than it had forecast less than three weeks ago.
Merrill's disclosure raised the prospect that investment banks, which seemed a few weeks ago to be getting a handle on the sub-prime crisis, could face further losses on complex mortgage-related securities.
"The trend is not in the direction of 'This is over,' " said Richard X. Bove, an analyst at Punk Ziegel & Co. "The trend is in the direction of 'This is building.' "
The news from Merrill shocked the stock market and, along with a report of tumbling sales and prices of homes in September, sent the Dow Jones industrial average down more than 200 points before it recovered, in part on rumors of an imminent interest-rate cut by the Federal Reserve. The Dow ended the day virtually unchanged.
The country's biggest brokerage firm, Merrill wrote off $7.9 billion of mortgage-backed securities. As the company said with frankness not usually found in corporate news releases, that amount was "significantly greater" than the $4.5 billion in write-downs estimated by Merrill on Oct. 5.
"What shocked everyone is the magnitude in terms of dollar amounts," said Nathan Powell, an analyst at RiskMetrics Group, a financial research firm. "You're talking about billions and billions of dollars."
Merrill's chief executive, Stanley O'Neal, said in the news release that the planned write-offs grew after Merrill "reexamined" its holdings and decided to value them more conservatively.
The soured investments led to a third-quarter net loss of $2.2 billion, or $2.82 a share, more than five times Merrill's previous estimate of a 50-cent-a-share loss. Merrill shares sank $3.90, or 5.8%, to $63.22, a new 52-week low. The stock is down 32% this year.
Analysts said the results would put pressure on Merrill's board to fire O'Neal for the company's failure to foresee the bust that followed the recent booms in mortgage-backed and takeover-related debt.
At Bank of America, a similar failure is leading the company to slash 3,000 jobs and prompting the retirement of the chief of its corporate and investment banking unit.
"We recognize that there are areas where we need to improve and are moving decisively toward that goal," Kenneth Lewis, Bank of America's chief executive, said in a statement.
