Merrill Lynch & Company posted a much larger-than-expected $4.89 billion quarterly loss after writing down soured debt, and unveiled plans to sell billions of dollars of assets - including a part of its lucrative brokerage business - to shore up capital.

The loss was the fourth straight for Wall Street's third-largest investment bank, and was more than twice as big as analysts expected. Chief executive John Thain called the quarter 'difficult and disappointing.'

Thain joined Merrill in November to turn around a company that had been rocked by massive write-downs of complex debt securities.

But so far this year, the company has racked up more than $7bn of net losses for common shareholders, as bad investment and business decisions made under former chief executive Stanley O'Neal have haunted Thain.

'They're moving in the right direction but Merrill still has significant challenges, including material exposure to collateralised debt obligations,' said Al Frank Asset Management analyst Chris Armbruster,

Al Frank Asset Management holds 24,000 Merrill shares. 'We like the company, but it's going to be a tough go.'

Merrill's shares fell $1.83, or 6 per cent, to $28.90 in after-hours trading.

Merrill's shares had risen $2.73, or 9.8pc, during the day after JPMorgan Chase & Company posted better-than-expected second-quarter earnings and triggered a broader financial rally.

But Merrill's losses may dampen optimism in the financial sector, a day before Citigroup posts results.

Merrill said it is in discussions to sell a controlling stake in its Financial Data Services unit, which provides mutual fund administrative services and retail banking products, to an undisclosed party in a transaction valuing the unit at more than $3.5bn.

The unit is part of Merrill's brokerage business. It also said it has completed and is helping finance the long-expected sale of its 20pc stake in Bloomberg, the news and financial data company, to Bloomberg for $4.43bn.

The quarterly loss applicable to common stockholders was $4.89bn or $4.97 per share, after a profit of $2.07bn, or $2.24 per share, in the same period last year.

Excluding restructuring charges, Merrill lost $4.95 per share, far more than the $1.94 per share loss that analysts on average expected, according to Reuters estimates. Merrill recorded $9.4bn of write-downs from exposure to CDOs, residential mortgages, bond insurers and other investments.

It has written down about $40bn since the credit crisis began a year ago, leading to net losses exceeding $19.2bn.

Moody's Investors Service downgraded Merrill's long-term debt rating one notch to 'A2,' its sixth highest investment grade, and in line with Standard & Poor's equivalent rating.

'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,' Moody's analyst Peter Nerby.

Thain, in a conference call with reporters, said that a further downgrade to the bank from either ratings agency would force Merrill Lynch to post significantly more collateral on its trades.

In a conference call with investors last month, Thain said Merrill Lynch would consider selling its 49.8pc stake in fund manager BlackRock. On Thursday, Thain told reporters that Merrill decided not to sell the stake because it was a 'strategic relationship and an asset we wanted to keep.'

Results included losses of $3.5 billion from exposure to CDOs, $2.9bn related to hedges, $1.7bn from an investment portfolio of the company's US banks, and $1.3 billion from residential mortgages.