Well, that was ugly.

The first quarter was always expected to be a bad one for Merrill Lynch, and the firm did not disappoint: This is its third consecutive quarterly loss—$1.96 billion, larger than forecasts—with more than $9 billion in write-downs.

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The question now is how its new chief executive, John Thain, can revive a firm battered by the subprime crisis. After an ambitious yet ill-timed expansion to be a more aggressive risk taker, Merrill will become a leaner, more cautious firm. Can it return to the moneymaking machine it once was?

The firm is taking a big step toward being leaner, announcing that it will cut 4,000 jobs, or about 10 percent of its workforce. Brokers will be excluded from the round of job cuts. The cuts are expected to generate $800 million in annual savings.

Merrill reported a loss from continuing operations of $1.97 billion, or $2.20 per share, compared with earnings of $2.03 billion, or $2.12 per share in the quarter a year earlier. Net revenue, or revenue minus interest expenses, fell 69 percent, to $2.9 billion, lower than forecasts.

Net revenue was impacted by write-downs of $1.5 billion tied to collateralized-debt obligations and $3 billion on hedges provided by bond insurers, as well as write-downs on leveraged loans.

On its balance sheet, the firm also took another $3.1 billion in write-downs on securities tied to Alt-A residential mortgage securities, the next step up from subprime.

Merrill Lynch recorded some $25 billion of write-downs last year, and Thain's first task was to scramble to raise more than $12 billion in new capital.

"Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," Thain said in a statement. "The firm's $82 billion excess liquidity pool has increased from year-end levels, and we remain well-capitalized."

Still, because of the missteps it took in buying and securitizing mortgages, "Mother Merrill" has become the weak old lady of Wall Street. Can Thain revive her?

Gary Weiss in Condé Nast Portfolio notes, "Thain is no stranger to either the intricacies of mortgage bonds or the delicate job of extricating firms from self-created trading fiascoes."

"The firm is fixable—if. And the ifs pile up on one another. If Thain can salvage Merrill's reputation amid the multiple investigations, including a criminal probe by the United States Attorney for the Southern District of New York. If the credit crunch doesn't worsen, turning the firm's billions of dollars in derivatives exposure into a time bomb. If Thain can nurture Merrill's cash cows—its brokers and investment bankers—in a murderous economy. And last and most delicate, if he can foster a climate of trust and respect in a company with more than its share of sensitive egos."