UPDATE 3-Analysts expect Merrill to post Q2 loss, more writeoffs

jueves 26 de junio de 2008 18:00 CEST

(Adds analysts' comments, background and share price)

By Tenzin Pema

BANGALORE, June 26 (Reuters) - Wall Street analysts forecast a second-quarter loss for Merrill Lynch & Co MER.N and said it will likely incur total write-downs in the range of $3.5 billion to $4.2 billion, causing shares of the world's largest brokerage to fall as much as 5 percent.

Analysts at Goldman Sachs and Sanford C. Bernstein said they expect Merrill to post its fourth straight quarterly loss from its exposure to collateralized debt obligations (CDOs) and hedges.

"Yet again, the biggest swing factor for Merrill's upcoming second-quarter results will be the severity of the write-downs related to Merrill's CDO and mortgage-related exposures," Bernstein analyst Brad Hintz wrote in a note to clients.

In addition, the level of valuation reserves Merrill takes against its CDO and mortgage-backed securities hedges will also play a large role in the ultimate size of earnings losses the firm reports, Hintz said. He estimates Merrill will take $3.5 billion in write-downs.

In a separate report dated June 25, Goldman Sachs analyst William Tanona forecast write-downs of $4.2 billion at Merrill, and $8.9 billion at Citigroup Inc (C.N: Cotización).

"We expect write-downs for Citigroup and Merrill to outpace what we saw from Morgan Stanley (MS.N: Cotización) and Lehman Brothers Holdings Inc LEH.N recently, due to Citigroup's and Merrill's large exposures to ABS (asset-backed security) CDOs and associated hedges with the monolines (insurers)," Tanona said.

He cut his price target to $38 from $42, and rates the stock "neutral."   Continuación...