Merrill loses $2 billion as sales plunge

NEW YORK —  Investors are giving Wall Street’s biggest firms the benefit of the doubt.

Despite generally glum earnings reports, investors have lately been bidding up bank and brokerage stocks in hopes that the gargantuan write-offs stemming from the sub-prime mortgage crisis are nearing an end.

That dynamic played out Thursday as shares of Merrill Lynch & Co. rose 4% even though the brokerage giant reported a nearly $2-billion quarterly loss, wrote off $6.6 billion in assets and revealed plans to increase job cuts to 4,000.

Though earnings fell shy of analyst estimates, Merrill’s shares climbed $1.82 to $46.71.

“I wasn’t impressed with [Merrill’s] numbers but I was impressed by the performance” of the stock, said Bill Buechler, president of Buechler Capital Asset Management in La Jolla. “The market has discounted a deep recession, and anything short of that will, in the market’s perverse way, turn out to be bullish.”

Investors could take hope from the possibility that Merrill has hit bottom after three straight quarterly losses. John Thain, the chief executive, indicated the brokerage would return to profitability this year.

For its fiscal first quarter, Merrill reported a net loss of $1.96 billion, or $2.19 a share, compared with net income of $2.16 billion, or $2.26, a year earlier.

Revenue slumped 69% to $2.9 billion for the three months ended March 28. Business fell in several key areas, including investment banking, where revenue was down 40%.

Wall Street had expected a loss of $1.99 a share on $3.7 billion in revenue, according to a poll by Thomson Financial.

Merrill wrote off losses in a variety of areas, including mortgage securities, mortgage loans and loans made to finance corporate buyouts by private-equity firms.

Thain said the quarter was as difficult “as I’ve seen in my 30 years on Wall Street.”

Though investors have been in a forgiving mood recently when it comes to financial companies -- the sector surged Wednesday after results from two banks were not disastrous -- Merrill’s numbers distressed some analysts.

The company’s total write-off was $9.7 billion, but because of the way it was accounted for, $3.1 billion of that did not affect earnings. Instead, it lowered Merrill’s net worth.

Merrill’s results were “not exactly the silver lining that some were looking for,” William Tanona, a Goldman Sachs analyst, wrote in a note to clients.

Merrill has been one of the biggest casualties of the sub-prime crisis, in part because it plowed more aggressively into the business even as problems began developing in loans to those with poor or no credit.

Another major player in the sub-prime debacle, Citigroup Inc., will report results today.

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Reuters contributed to this report.