March 6 (Bloomberg) -- Merrill Lynch & Co., the securities firm acquired by Bank of America Corp., said it uncovered an “irregularity” during a review of its trading operations.

The bank informed regulators immediately of the discrepancy in “certain trading positions”, Merrill Lynch said in a statement from London today. The bank said it’s working with the authorities to investigate further. A spokeswoman for the bank declined to comment further.

Merrill Lynch may have lost hundreds of millions of dollars on currency trading and credit derivatives last year, the New York Times reported earlier today. The losses did not “spill into plain view” until after Bank of America investors had approved the $33 billion takeover in December and Merrill Lynch disbursed $3.6 billion in bonuses to bankers, the newspaper said. Bank of America later sought additional government funding.

“Senior managers of the business are focused on the issue and believe the risks surrounding possible losses are under control,” Merrill Lynch said in the statement.

Bank of America Chief Executive Officer Kenneth Lewis is trying to rein in Merrill’s traders after their losses brought the bank to the brink of collapse, the New York Times said.

“It was always going to be extremely difficult to integrate a retail bank like Bank of America with an investment bank like Merrill because the cultures are so different,” said Richard Staite, an analyst at Atlantic Equities LLP in London. He has an “underweight” rating on Bank of America’s shares.

Tom Montag

Many of Merrill’s top executives have left since Bank of America’s takeover, including CEO John Thain, Greg Fleming, head of investment banking, and Robert McCann, who led the wealth- management unit. The bank’s markets division is run by Thomas Montag, 52, who Thain hired from Goldman Sachs Group Inc.

Three weeks ago, risk officers discovered that a London currency trader who had recorded a trading profit of $120 million for the fourth quarter may instead have lost a large amount, the New York Times said, citing an unidentified Bank of America executive.

The newspaper identified the employee as Alexis Stenfors, 38. He told the New York Times the matter was a “misunderstanding” and is co-operating with the probe. He remains a Merrill Lynch employee. Calls to his office in London and mobile phone from Bloomberg News weren’t answered.

Stenfors previously worked at Calyon, the investment- banking unit of France’s Credit Agricole SA, according to the U.K. Financial Services Authority’s register. He joined Merrill Lynch in 2005, and is listed as being “inactive” since Feb. 25. A spokeswoman for Calyon couldn’t immediately comment.

British regulators are also examining the employee’s trades, the newspaper said. Joseph Eyre, a spokesman for the FSA, declined to comment when telephoned today.

‘Materially Flawed’

The U.K. markets regulator said in August it would investigate some securities firms’ pricing practices after finding valuations were “materially flawed or inadequate.”

Bank of America, based in Charlotte, North Carolina, posted its first quarterly loss since 1991 in January and cut the dividend to a penny after receiving $138 billion in emergency government funds to support the Merrill takeover. The fourth- quarter loss of $1.79 billion compared with net income of $268 million the previous year. The bank is cutting as many as 35,000 jobs to reduce annual costs by about $7 billion.

The shares have plummeted 88 percent in New York trading since the Merrill acquisition was announced in September, falling to the lowest level in almost two decades in February. The stock advanced 3 percent to $3.27 at 9:32 a.m. in New York trading for a market value of $20.9 billion.

To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net

Last Updated: March 6, 2009 09:36 EST