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Wall Street analysts see bigger 2008 loss for Merrill

(Agencies)
Updated: 2008-07-29 22:02

BANGALORE - Several analysts, including Oppenheimer's Meredith Whitney, widened their loss view on Merrill Lynch (MER.N), after the Wall Street investment bank and brokerage said it will take a $5.7 billion third-quarter writedown as it unloads risky debt and raises $8.5 billion in capital.

A Merrill Lynch sign is seen in Toronto, April 29, 2008. [Agencies]

The announcement follows Merrill's second-quarter loss of $4.9 billion, hurt by more than $9 billion in write-downs. Merrill has already recorded billions of dollars of writedowns from subprime mortgages and risky debt.

Related readings:  UBS, Merrill private banking growth slows on subprime  Latest Merrill loss follows writedown  Merrill Lynch plans to expand in China  Citigroup, Merrill Lynch win top spots

The $8.5 billion fund-raising efforts will include Singapore sovereign wealth fund Temasek Holdings (TEM.UL) investing an additional $900 million into Merrill Lynch.

Whitney, who "applauded" Merrill's efforts to cut its losses, said, "we believe the stock is getting closer to fairly valued levels as now the hardest work is behind the company."

Whitney sees a 2008 loss of $10.50 a share for Merrill, up from her prior loss view of $8.37.

Commenting on Merrill's plans, UBS, Banc of America and Credit Suisse said though Merrill's risk exposure has reduced significantly, the company has had to pay a price for it.

Widening its loss view by 80 percent, Credit Suisse said, "Merrill has now substantially reduced its ABS CDO exposure. But the exit was expensive, coming at a price below marks."

The company has lost $19.2 billion in the past year and suffered more than $40 billion of write-downs. Its shares have lost half their value since January.

Citigroup, which increased its loss view by $1.29, said it expects the sale of highly illiquid mortgage related assets to be a catalyst to refocus on the earnings power of the Merril franchise.

Analysts on average see 2008 loss in the range of $5.47 to $12.70, the biggest loss being forecast by Credit Suisse.

Shares of Merrill Lynch were trading down 23 cents at $24.10 in before the bell trading, after having closed at $24.33 Monday on the New York Stock Exchange.