CORRECTED - CORRECTED-UPDATE 1-Citigroup sees $15 bln writedown at Merrill i

miércoles 16 de enero de 2008 23:27 CET
 

(Corrects paragraph 9 to clarify that Citigroup widened its fourth-quarter loss view on Merrill to $11 per share from $9 per share, and not to 11 cents from 9 cents)

(Changes source, recasts, adds details)

Jan 16 (Reuters) - Citigroup expects a $15 billion fourth-quarter write-down at Merrill Lynch & Co Inc MER.N and said CDO/subprime exposures will decline by 50 percent to 70 percent in aggregate.

Though the write-downs will be large, it will now be behind the firm and enable the management to focus on leveraging the franchise's inherent earnings power, Citi analyst Prashant Bhatia said in a note to clients.

Bhatia, who continues to rate the stock at "buy," lowered his price target on Merrill stock to $75 from $80 to reflect the dilutive impact of a capital raise.

The analyst also widened his fourth-quarter and fiscal 2007 loss estimates for Merrill to reflect the write-downs.

He estimates that from the $12.8 billion capital raised by Merrill over the past month, $10 billion will be used to offset write-downs while the rest will be used to enable the firm to be better positioned to focus on growth.

"The latest $6.6 billion capital raise gives (Merrill) management much more flexibility to be opportunistic going forward," Bhatia said in the note dated Jan. 15.

Merrill, once the largest underwriter of collateralized debt obligations (CDOs) in the United States, had on Tuesday said it would raise $6.6 billion from selling preferred shares to an investor group that includes the Kuwait Investment Authority.   Continuación...