Moody's downgrades Merrill

Moody's Investors Service said it downgraded the senior long-term debt of Merrill Lynch and Co., Inc. and its subsidiaries to A2 from A1. The Prime-1 short-term ratings were affirmed.

The downgrade follows a $4.7 billion second quarter loss, the agency said, and concludes a review that began on April 17.

The outlook is stable.

Moody's said the downgrade reflects Merrill's fourth consecutive quarter of sizable losses, resulting from its legacy asset-backed collateralized debt obligations and subprime mortgage portfolios.

Merrill's sale of its stake in Bloomberg and its intent to sell FDS will substantially mitigate the impact of the second quarter loss on capital ratios, according to the agency.

"Management's options to sell assets or raise more common equity to offset unexpected losses are now reduced given the difficult industry and capital markets environment," Peter Nerby, a senior vice president at Moody's, said in a written statement.

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