Merrill Lynch Posts Loss of $361 Million in 4th Quarter

NEW YORK — Merrill Lynch & Co., severely battered by the prolonged downturn in the securities industry, said Monday that it was reporting a significant net loss for its 1989 fourth quarter and the full year because of a $395-million after-tax charge to cover costs of restructuring its operations.

The firm, the nation’s largest securities brokerage, said the charge resulted in a net loss for the fourth quarter of $361.8 million, contrasted with a profit of $275.8 million for the same quarter a year ago.

For the full year, Merrill Lynch reported a net loss of $213.4 million, contrasted with a profit of $463.2 million for 1988.

However, revenue for the full year reached an all-time high of $11.335 billion, up from $9.748 billion in 1988.

The charge against earnings, which totaled $470 million pretax, appears to be the largest the firm has ever taken. In 1987, it took a $377-million pretax charge as a result of a loss incurred in a single day from mortgage-backed securities trading.

The firm, as have most on Wall Street, has suffered from the effects of a weaker stock market and fierce competition for a smaller amount of business, including new competition from commercial banks and overseas firms. In recent months, it has announced plans to scrap several lines of business, consolidate offices and scale back other operations.

Like other firms such as Shearson Lehman Hutton and Drexel Burnham Lambert, Merrill Lynch has begun laying off large numbers of employees. Merrill reportedly is planning to lay off at least 3,000 by the end of 1990.

“Our 1989 operating results reflect the difficult environment experienced industrywide, characterized by a low level of individual investor activity, broad-based deterioration of the high-yield (junk) bond market, thinning margins in several product areas and intensified competition,” Merrill Lynch Chairman William A. Schreyer and President Daniel P. Tully said in a statement.

The firm said the special one-time charge includes the cost of leases, severance payments and writeoffs of assets that have been eliminated or cut back. It includes the costs from the sale of its Canadian retail brokerage business and its abandonment of certain European securities dealing operations. Merrill Lynch said it expects the cutbacks to save it about $100 million per year.

The brokerage said that, without the charge, it would have reported a profit of $181.6 million for the year and $33.2 million for the fourth quarter.

The firm’s year-end earnings report shows that commission revenue, interest and dividend income, and insurance and asset management revenue were all up for the year, while revenue from investment banking and “principal transactions”--securities traded for the firm’s own account or held as inventory--declined.

The decline in revenue from principal transactions presumably reflects a markdown of the value of junk bonds that the firm holds. The junk bond market has been in a slump for months, following defaults and bankruptcy proceedings by several prominent junk bond financed companies.

For the fourth quarter, Merrill’s per-share net loss amounts to $3.56, compared to net income of $2.59 per share a year earlier. For the full year, the net loss equaled $2.31 per share, compared to net income of $4.21 per share in 1988.