Merrill looks into irregular accounts in U.K.

Merrill Lynch & Co. said Friday it is examining some irregularities in London trading accounts and has informed regulators, but believes the risk of possible losses is "under control."

Merrill Lynch & Co. said Friday it is examining some irregularities in London trading accounts and has informed regulators, but believes the risk of possible losses is “under control.”

The company disclosed it was investigating trading, following a report in The New York Times that a London-based foreign exchange trader lost more than $120 million while others may have lost hundreds of millions more on derivatives trading.

“During a recent evaluation of certain trading positions, we discovered an irregularity. We informed regulators immediately and are working closely with authorities to thoroughly investigate the matter. Senior managers of the business are focused on the issue and believe the risks surrounding possible losses are under control,” Merrill Lynch said in a statement released by London-based spokesman Tim Cobb.

Questions about the accounts arose last month at Merrill, which was acquired by Bank of America Corp. in January, according to the Times report.

Britain’s Financial Services Authority declined to say whether it was investigating possible irregularities at Merrill Lynch.

The investigation comes a week after New York-based Merrill reported a revised 2008 loss that was $533 million worse than previously reported. Merrill revised its full-year loss to $27.61 billion from the $27.08 billion it reported in January, according to a filing with the Securities and Exchange Commission.

In the filing, independent accounting firm Deloitte & Touche LLP noted Merrill erroneously recorded transactions tied to hedging. Deloitte and Touche said errors in recording hedging transactions demonstrated Merrill did not maintain effective control over its financial reporting for 2008.

Cobb said last week’s adjustments to the 2008 losses were not related to the current investigation.

Merrill’s mounting losses have been a point of concern in recent months. Charlotte, North Carolina-based Bank of America received an additional $20 billion from the government in January that it said it needed to help offset the losses it was absorbing from the Merrill acquisition. The government also promised to cover the bulk of losses on more than $100 billion in risky assets. The additional support was provided to Bank of America as its chief executive, Ken Lewis, showed trepidation about completing the deal to acquire Merrill.

Bank of America had already received $25 billion in government funds as part of a $700 billion bank investment program.

Merrill has also come under fire in recent weeks for year-end bonuses it paid to its employees in December just weeks before it was sold to Bank of America and ahead of the initial report of its 2008 losses. New York Attorney General Andrew Cuomo is investigating the timing of the bonuses and whether Merrill provided adequate disclosures about them and its projected losses.

Merrill’s former CEO, John Thain, who was ousted from his position at the combined company in January, has testified twice in recent weeks before Cuomo’s office about the bonuses. Bank of America’s Lewis has also testified about the bonuses, but declined to give specifics about individual bonuses.

Earlier this week, Cuomo’s office subpoenaed seven additional Merrill employees to gather further information about individual bonuses.

The government helped orchestrate Bank of America’s acquisition of Merrill over the same weekend in September that another investment bank, Lehman Brothers, went under, setting off one of the most intense periods of the financial crisis.