The third-largest US investment bank said on Monday that it will be taking another huge write-down - US$5.7 billion (S$7.8 billion) for the third quarter - as it unloads huge amounts of risky debt, and will also raise US$8.5 billion by selling new stock.

This comes less than two weeks after Merrill posted a US$4.9 billion second-quarter loss after being hit by US$9 billion of write-downs in that same period.

In a sign of how toxic Merrill's debt holdings have become, it has agreed to sell US$30.6 billion of collateralised debt obligations (CDOs), a kind of repackaged debt, to an affiliate of private equity fund Lone Star Funds for just US$6.7billion, or about 22 US cents on the dollar.

The fire-sale nature of that deal will add to concerns that the global credit crisis still has a long way to run. 'What is happening to Merrill and others is death by a thousand cuts. It's painful to see it happen over and over again,' said Mr Daniel Alpert, managing director at investment bank Westwood Capital.

Merrill said its stock sale, which includes a US$3.4 billion purchase by Temasek Holdings, may grow to US$9.8 billion.

Analysts said Monday's news may raise further questions about the ability and credibility of Mr John Thain, who became Merrill's chief executive officer last December following Mr Stanley O'Neal's ouster. As recently as July 17, Mr Thain had said: 'Right now we believe we are in a very comfortable spot in terms of our capital.'

Merrill has lost US$19.2 billion in the past year alone and suffered over US$40 billion of write-downs.

Its shares sank on Monday, ahead of the announcement, and at US$24.33, were less than a third of their value a year ago.

Analysts were quick to cut forecasts for Merrill, with Bank of America lowering its price target to US$40 a share from US$47, and Credit Suisse widening its loss-per-share estimate to US$12.70 from US$7.

The most recent round of capital-raising was particularly bruising due to provisions Merrill agreed to when it raised money earlier, giving investors like Temasek extra compensation if it later issued shares at a lower price.

Smith Asset Management president William Smith said Merrill fetched a 'horrendous' price for the CDOs.

'The problem here is with Thain. You can throw him into the credibility problem camp now,' he said.

'It's tough to call the bottom on these things because it seems like it's never ending, but this could be viewed as the watershed.'

REUTERS