The investment bank Merrill Lynch has emerged as one of the worst-hit victims from the recent US credit meltdown as it revealed that losses of $US5.5 billion ($A6.1 billion) on mortgages and bad loans would push it into the red for the first time in six years.

In a profit warning on Friday, Merrill disclosed that it expected to make a loss of US50 a share for the three months to September, compared with analysts’ forecasts of a profit of some $US1.30.

The announcement came just days after the bank fired its London-based head of fixed-income trading, Osman Semerci, and parted company with two other senior executives in a shake-up of the division that deals in mortgage-backed securities.

Merrill’s chief executive, Stanley O’Neal, admitted that the bank had failed to handle financial risks effectively.

“While market conditions were extremely difficult and the degree of sustained dislocation unprecedented, we are disappointed in our performance in structured finance and mortgages,” he said. “We can do a better job in managing this risk, as we have done with other asset classes.”

Merrill Lynch joins only UBS among global investment banks suffering an overall loss from the credit crunch although others, including Bear Stearns and Morgan Stanley, have suffered sharp deterioration in their profits.

Earlier last week Citigroup issued a profit warning and said third-quarter earnings would fall by 60 per cent due to bad loans in the subprime market. On the same day, the Swiss bank UBS announced subprime and trading losses of $US3.4 billion.

But there was reassurance for Merrill’s 70,000 employees that rumours of large-scale job cuts were unfounded. A spokeswoman in New York said: “We are not contemplating any significant scale-downs.”

The bulk of Merrill’s losses are in collateralised debts and subprime mortgages, where the firm is writing off $US4.5 billion net of hedges. It lost a further $US967 million on “non-investment grade lending commitments”, including activity in underwriting transactions.

In spite of the warning, Merrill’s shares rose by $US1.51 to $US76.29 during early Friday trading on the New York stock exchange partly on relief, according to analysts, that the damage was out in the open.

Ryan Lentell, a banking analyst at Chicago-based research firm Morningstar, said Merrill’s revelation was “not a pretty one”, but added that the bank’s franchise remained intact. In a research note, he said: “Merrill probably had a more aggressive bet in this area than many of its rivals. Chief executive Stanley O’Neal was rather upbeat about Merrill’s subprime business in the first half of 2007. That obviously came back to bite the firm this quarter.”

Merrill’s warning was echoed by a disclosure of financial damage at another US bank, Washington Mutual, which revealed it would take a $US975 million hit on the credit crunch.

GUARDIAN

It may be inevitable that the NZ Stock Exchange merges with the ASX, writes Matt O’Sullivan.

AS IF losses on the rugby field weren’t bad enough, the Kiwis are now facing more pressing problems at home the likely loss of more blue-chip companies from its sharemarket.

After Carter Holt Harvey departed the New Zealand market last year following billionaire Graeme Hart’s privatisation of the forest products giant, the prospect of a partial takeover of Auckland International Airport and full buyout of Sky City Entertainment leaves the Kiwis facing a familiar scenario: a lack of local listed companies in which to invest.

The Kiwis haven’t always been quick to put their hands up for closer ties with their neighbours on this side of the Tasman the on-off talks about a common currency is just one glaring example.

But the likely changes to the ownership of the country’s fourth and fifth-largest listed companies gives credence to claims that a single trans-Tasman sharemarket is in NZ’s best interests. That’s because advocates of a merged bourse believe the disappearance of large companies from the NZ Stock Exchange (NZX) will make the Shakey Isles a more marginal destination for foreign capital.

“If these deals go through, the benchmark is going to become very skewed to one stock and NZ super funds are likely to steer away from NZ- only share mandates,” says Paul Fiani, a leading Australian fund manager who left UBS in May, soon after resisting an $11 billion private equity bid for Qantas. “The benchmark would begin to look quite ludicrous. If you are a fund manager that solely invested in NZ shares it would be a big issue.”

Fiani is no stranger to investing in NZ, given his tenure at UBS, the Swiss investment bank which has held large stakes in Auckland Airport, Sky City and Telecom.

NZ companies have had difficulties accessing capital before because foreign investors have overlooked the country due to Telecom’s domination of the benchmark index.

“Foreign investors will pretty much just stop looking; that will be a real challenge for NZ companies which are trying to access capital,” says Fiani, who recently set up the boutique fund manager Integrity Investment Management. “NZ needs access to capital and if their market becomes further marginalised that becomes hard for them.”

The NZ market’s capitalisation has grown at just 1 to 2 per cent a year over the past decade, partly because of companies exiting the bourse.

Apart from Sky City and Auckland Airport, the bourse could lose NZ’s biggest general merchandise and apparel retailer, The Warehouse, should Woolworths’ takeover bid succeed. Then there’s a smaller Telecom NZ after it sold its directories business to a private equity consortium this year.

The incumbent telephone company makes up more than 15 per cent of the benchmark NZSE 50 index (at one point it had a weighting of more than 30 per cent), compared with its counterpart in Australia, Telstra, which comprises just 2 per cent of the Australian market’s benchmark index.

Furthermore, New Zealand’s top-three listed companies make up nearly two fifths of the NZSE 50 while, this side of the Tasman, BHP Billiton, the Commonwealth Bank and National Australia Bank comprise just over a fifth of the ASX’s benchmark.

“I have been investing in New Zealand for over 10 years and in that time I have seen many foreign investors give up on the NZ market because of the lack of market depth and over-reliance on Telecom,” Fiani says. “As an economy you need access to capital. Many New Zealand firms have dual listings now, which helps them access foreign capital.”

He believes that if the Europeans can successfully merge their currencies and stock exchanges it should be “pretty easy for Australia and New Zealand to have a common capital market”.

Since 2005, exchanges worldwide have announced at least $US64 billion ($71 billion) of acquisitions and joint ventures, data compiled by Bloomberg shows. The largest was NYSE’s $US14 billion purchase in April of Paris-based Euronext, which was formed in 2000 after a merger of exchanges in Belgium, France and the Netherlands.

Kiwi fund managers concede the exodus of companies from the bourse is worrying, but are not so quick to advocate a merged trans-Tasman exchange. “It’s been a problem for a long time. If you contrast the performance of the NZX and the ASX it’s a very sorry story for the NZX that looks like persisting,” says Simon Botherway, a fund manager at Brook Asset Management in Auckland.

“At some point there are going to be more and more stocks that are going to be subject to M&A. We would like to see more listing in New Zealand but we are very much Australasian focused, so we don’t really mind whether the stock is listed in New Zealand or Australia.”

The NZX is in the throes of expanding into Australia via the launch of an electronic trading platform, in which it holds a 50 per cent stake. But delays to gaining an Australian market licence from the federal Treasurer in order to become a market for ASX listed securities means it is unlikely to begin trading until at least February.

Back home, the NZX faces the prospect of dairy giant Fonterra making a partial listing. However, fund managers are not convinced this is an inevitability given it will need the approval of three-quarters of its farmer shareholders, who are notoriously suspicious about the need to list.

An analyst for New Zealand investment bank Forsyth Barr, Guy Hallwright, says the local exchange is working hard to graduate start-up companies to the bourse. But he concedes a merger with the ASX is a possibility in the longer term because of the global trend towards bourses amalgamating.

“The New Zealand market has not been growing in the same way that the Australian market has it’s the kind of market from which a very successful company will graduate at some stage.”

But, just like on the rugby field, emotion enters the equation in any debate about a merger.

Tyndall Investment Management’s domestic equities manager, Rickey Ward, doubts a merger of the New Zealand and Australian bourses will eventuate because it becomes wrapped in politics. As he puts it: “Everyone wants to retain their identity. That is the problem.”

(07-25) 13:40 PDT Los Angeles (AP) —

Target Corp., the nation’s second-largest retailer, will start selling a Sony Blu-ray high-definition DVD player during the critical holiday shopping period and feature the player along with DVDs in the format in store displays, dealing a potential blow to the rival HD DVD format.

The move, which the companies will formally announce Thursday, is another step in resolving a format war that has kept confused consumers from rushing to buy new DVD players until they can determine which format will dominate the market.

Target will sell the Sony BDP-S300 for $499 in October and display it along with Blu-ray DVDs from three studios, including Sony and The Walt Disney Co., at the ends of store aisles.

The Target announcement came five weeks after a decision by video rental chain Blockbuster Inc. to offer only Blu-ray titles when it expands its high-def offerings this fall.

Blu-ray is backed by Sony Corp., which developed it. Most Hollywood studios are releasing films either exclusively in Blu-ray or together with the rival HD DVD format, which is backed by its developer, Toshiba Corp.

Only Universal Studios, a unit of General Electric Corp., is releasing films exclusively in HD DVD.

Both formats offer a crisper, brighter high definition picture as well as more storage that allows interactive features and games to be packaged with movies.

Consumers have been slow to embrace either format, worried they might get stuck with a losing technology.

Target does not sell high-def DVD players in its stores, although it does sell a Toshiba player for $299 on its Web site

Target stores do sell an HD DVD add-on for the Microsoft X-Box 360 as well as Sony Corp.’s PlayStation 3, which comes with a Blu-ray player built in.

Target would not say why it decided to sell only Blu-ray players. Sony is paying a fee to have their products featured in the end-of-aisle display, called an endcap, although Sony executives said the retailer contacted them about the decision.

“We are not proclaiming one format vs. the other as the preferred consumer technology, and software will continue to be available to our guests in both the Blu-ray and HD-DVD format,” Target spokeswoman Brie Heath said.

Target will track customer feedback and adjust offerings as necessary, Heath said.

The HD DVD camp was not fazed by the Target decision, pointing out that HD DVD players continue to outsell Blu-ray players, which are at least twice the cost. They also point out that HD DVD players and DVDs are featured in endcap displays in Circuit City and Best Buy stores.

HD DVD promoters also contend that consumers are more influenced by price than product selection.

“HD DVD players are the most affordable,” said Ken Graffeo, co-president of the North American HD DVD Promotional Group. “It’s one thing to have a player featured, but it’s another if it doesn’t sell.”

While more titles are available in the Blu-ray format, this fall should provide a head-to-head contest between the two formats.

Two blockbuster films Д “Spider-Man 3,” from Sony and “Pirates of the Caribbean: At World’s End” from Disney Д will be available exclusively on Blu-ray.

The HD DVD camp will be counting on sales of the blockbuster film “300,” from Warner Bros., which will be released in both formats, and the first season of the popular sci-fi TV show “Heroes,” which will be available exclusively on HD DVD.

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AP Business Writer Joshua Freed contributed to this story from Minneapolis