Merrill warns of further losses

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Merrill Lynch has said it expects to write off another $5.7bn (£2.9bn) in the current three-month period because of mortgage-related losses.

It has also announced that it is going to raise at least $8.5bn by selling new shares of which $3.4bn will be bought by Singapore's Temasek Holdings.

Merrill has already taken billions of dollars of losses and sold assets such as its 20% stake in Bloomberg.

Merrill shares fell about 5% in after-hours trading.

Much of the losses suffered by US banks relate to collateralised debt obligations (CDOs), which are complicated financial instruments based on mortgage debt.

Merrill has announced that it is selling CDOs with a face value of $30.6bn to a private equity fund for $6.7bn.

Credibility problems

"The sale of the substantial majority of our CDO positions represents a significant milestone in our risk reduction efforts," said Merrill chairman and chief executive John Thain.

The third biggest US investment bank had already written off nearly $40bn in four consecutive quarters of losses.

The announcement came only a few weeks after the announcement of $9.4bn of write-downs and sales of assets and has cast some doubt on Mr Thain's credibility.

"They did at least $7bn of asset sales, now they need another $8.5bn. Why do they need that much more? Are things that much worse than we were led to believe?" asked James Ellman from Seacliff Capital in San Francisco.

"If people were going to believe Thain when he said Merrill raised more capital than it needed to and had taken conservative marks on its securities book, I'm not sure they're going to believe him tomorrow morning."