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July 18, 2008

Economy: Merrill Lynch Credit Rating Drops After Massive 2nd Qtr Losses. Goldman Sachs and Morgan Stanley OK

   Merrill Lynch & Co. declined in New York trading after the third-biggest U.S. securities firm reported a wider-than-estimated second-quarter loss on $9.7 billion of credit-market write downs.

Moody’s Investors Service cut Merrill’s credit rating and the shares fell more than 4 percent. The net loss of $4.65 billion, or $4.97 a share, that the firm posted yesterday exceeded its $1.96 billion first-quarter loss, while rivals Goldman Sachs Group Inc. and Morgan Stanley stayed profitable.

Merrill earned $2.14 billion in the second quarter of 2007, before the credit contraction led to losses that now stretch over 12 months.

Chief Executive Officer John Thain cut about 4,200 jobs in the first half of the year and is selling assets to replenish the firm’s capital. Merrill completed the $4.43 billion sale of its stake in Bloomberg LP and said it signed a letter of intent to sell a controlling interest in Financial Data Services Inc., a mutual-fund administrator valued at $3.5 billion, to an undisclosed buyer.

Analysts’ estimates ranged from a loss of 93 cents a share to a loss of $4.21 a share, according to a survey by Bloomberg. Merrill’s charges from the credit crisis now exceed $46 billion.

“Clearly the size of the loss was a surprise,” Jeff Harte, an analyst at Sandler O’Neill & Partners in Chicago, said in a Bloomberg Television interview. “It still leaves people with the question of when are these marks going to stop and does Merrill Lynch have enough capital to weather the storm.”

Harte has a “hold” rating on Merrill shares.

Goldman Sachs, the biggest U.S. securities firm by market value, reported earnings of almost $2.1 billion for the three months ended May 30. Morgan Stanley, the industry’s second- largest company, posted $1 billion of net income. Both are based in New York.

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