Merrill Lynch & Co., Inc. is the latest investment banking firm to confess to large losses due to credit market conditions.

The firm announced today that the challenging credit climate will have an adverse impact on its net earnings for the third quarter.

The company expects to report a net loss of up to 50¢ per diluted share, resulting from significant negative mark-to-market adjustments to its positions in collateralized debt obligations, sub-prime mortgages, and leveraged finance commitments.

These mark-to-market adjustments primarily affect Merrill Lynch’s Fixed Income, Currencies & Commodities business. The company expects to report revenue growth in excess of 20% over the third quarter of 2006 in each of its other major business lines: Equity Markets (excluding the firm’s private equity business), Investment Banking and Global Wealth Management. Merrill Lynch expects to report a solid revenue performance from the rest of its FICC business, considering market conditions, and expects strong performance from its operations outside the U.S., led by the Pacific Rim region.

The primary drivers of the FICC net losses in the third quarter were write-downs of an estimated US$4.5 billion, net of hedges, related to incremental third quarter market impact on the value of CDOs and sub-prime mortgages; and, write-downs of an estimated US$967 million on a gross basis, and US$463 million net of related underwriting fees, related to all corporate and financial sponsor, non-investment grade lending commitments. These commitments totaled US$31 billion at the end of the third quarter of 2007, a net reduction of 42% from US$53 billion at the end of the second quarter.

“Despite solid underlying performances in most of our businesses in the third quarter, the impact of this difficult market was much more severe in certain of our FICC businesses than we expected earlier in the quarter,” said Stan O’Neal, chairman and chief executive officer of Merrill Lynch. “While market conditions were extremely difficult and the degree of sustained dislocation unprecedented, we are disappointed in our performance in structured finance and mortgages. We can do a better job in managing this risk, as we have done with other asset classes, including leveraged finance, interest rate and foreign exchange trading, equity trading, principal investments and commodities.”

Merrill Lynch also noted that senior vice president David Sobotka was promoted to the position of global head of FICC earlier in the week. Sobotka had been head of the group’s global commodities unit since 2004.