Merrill Lynch & Co. said it will post third-quarter losses of up to 50 cents per share as it writes down by $4.5 billion the value of collateralized debt obligations and subprime mortgages.
The write-downs “reflect in part significant dislocations in the highest-rated tranches of these securities which were affected by an unprecedented move in credit spreads and a lack of market liquidity in these securities,” the investment bank said in a press release.
Merrill Lynch said it was also writing down by $463 million net of underwriting fees the value of financing commitments for corporate buyouts. The bank has drastically scaled back such commitments, to $31 billion, compared with $53 billion at the end of the second quarter.
Merrill Lynch will report third-quarter results on Wednesday, Oct. 24.
Also today, Washington Mutual said it expects third-quarter earnings will be down 75 percent from last year, after setting aside $975 million for loan loss provisions and writing down by $150 million the value of $17 billion in mortgage loans held for sale.
In a Securities and Exchange Commission filing, WaMu also said it lost $110 million on mortgage-backed securities in the company’s available-for-sale portfolio.
On Monday, WaMu announced new procedures for working with mortgage brokers that require them to prove they have disclosed key loan terms to borrowers, including the broker’s commission on the deal.
Last month, WaMu said it would layoff about 1,000 employees in its Home Loans Group, and hire an equal number of retail and banking loan consultants. WaMu said at the time it had reduced staffing in its home-loan business by 28 percent and exited the correspondent channel, while falling from the third-largest mortgage originator last year to sixth place this year.
Other investment banks reporting recent losses related to subprime loans include Citigroup Inc., which reported $3.3 billion in write-downs Monday, including $1.3 billion in losses on subprime mortgage-backed securities warehoused for future collateralized debt obligation (CDO) securitizations.
Also on Monday, Swiss-based UBS AG said it would lay off 1,500 workers and announced $3.4 billion in write-downs, mostly on securities related to subprime mortgages.
Friedman Billings Ramsey analyst Paul Miller said Thursday he expects Countrywide Financial Corp. to report $1 billion to $2.2 billion in write-downs when it reports third-quarter earnings.