October 16, 2008 – 2:08 pm

Even as Citigroup was reporting its fourth consecutive quarterly loss Merrill Lynch not to be outdone, reported its fifth straight losing quarter. Merrill reported a third quarter net loss of $5.2 billion, on $9.5 billion of write-downs.

In addition to the write-downs – which include $5.7 billion in write-downs on a collateralized debt obligation sale and $3.8 billion in write-downs of real- estate related assets, government-sponsored entitites and broker-dealers – the latest results also were hurt by $2.6 billion in net losses from asset sales, a $2.5 billion payment to Singapore’s Temasek Holdings related to the planned acquisition and $425 million expense for auction-rate securities buybacks.

The $2.5 billion comes off of the $8.5 billion billion public equity offering Merrill held during the quarter. Temasek bought $3.4 billion; however, the U.S. firm had to pay $2.5 billion to make Temasek, Merrill’s largest shareholder, “whole” due to the dilutive impact of the stock sale. But Bank of America will receive $25 billion from the taxpayer to help Merrill Lynch smooth over some of the uncomfortable rough spots.

In addition Merrill booked a $2.8 billion decrease in the value of its debt as a gain via  SFAS 159, but as for SFAS 159 the company’s reports so far remains mum.

Net gains of $2.8 billion, due to the impact of the widening of Merrill Lynch’s credit spreads on the carrying value of certain of our long-term debt liabilities, which was similarly impacted by the severe market movements in September

The bank raised $14.225 billion in the quarter.

Enhanced capital base through a $9.8 billion common stock offering and the $4.425 billion sale of the Bloomberg stake

Now, Merrill will bring its problems to Bank of America, which has Countrywide Financials problems already.

BofA CEO Kenneth Lewis has called the pending acquisition “the strategic deal of a lifetime.”

More like “the offer he couldn’t refuse” as Mish said, the FED put enormous pressure on Bank of America to buy Merrill Lynch.

The deal will make BofA the nation’s leading retail brokerage and wealth-management firm with more than $2.5 trillion in client assets and more than 20,000 financial advisers.

The trick is to become Too Big to Fail, but not to fail by being Too Big Too Fast. The force-feeding of gluttonous giants such as Countrywide Financial, and Merrill Lynch could make Bank of America choke.

By strengthening wealth management, Lewis says, BofA will add the “final piece” to its leading positions in deposits, credit and debit cards and mortgages.

The “final piece” ?? Distraction!  The missing piece is earnings!  Wealth management is simply leveraged finance, a model recently and badly outted, the final piece is not the missing piece.

There is no easy way out of this one, Bank of America must generate profit growth from an investment bank that can only generate profit via high leverage, in a world that no longer tolerates high leverage.  And there it is bringing us back to Too Big to Fail.

From Merrill’s end John Thain who has previously mis-spoken from various ends of his mouth couldn’t resist spouting out.

Mr. Thain said in a conference call with analysts that he thought the focus was shifting to the problems in the real economy and away from weaknesses at financial institutions.

Who’s focus, does he mean by that weakness is shifting away from financial institutions?

“The real question is not whether or not we’re in a recession,” he said. “The real question will be how deep and how long, and of course, government actions will have an impact on that.”

No questions they are either, it will be deep and enduring,  Wall Street’s reckless banking began it and the governments bail out ensured it.

Thanks Boyz!

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