(Recasts, adds details from Oppenheimer note)
By Neha Singh
BANGALORE, July 2 (Reuters) - Merrill Lynch & Co Inc MER.N may incur $5.8 billion of write-downs in the second quarter, said Oppenheimer analyst Meredith Whitney, who also forecast a loss for the world's largest brokerage for the period.
Whitney's estimate is the highest yet among Wall Street analysts, who till date expected write-downs to range from $3.5 billion to $5.4 billion.
Analysts at UBS expect Merrill Lynch to write-down $4.5 billion, Citigroup Inc (C.N) $8.7 billion and JPMorgan Chase & Co (JPM.N) about $1.4 billion. They also forecast a quarterly and full-year loss at Merrill and Citigroup.
"Further weakening of the macro environment suggests to us that credit costs will continue to head higher, incremental reserve build is likely and credit costs will likely remain at elevated levels throughout 2009," UBS said in a note.
Analysts at Oppenheimer and UBS highlighted concerns that Merrill may need to raise capital, with Whitney saying she expects Merrill to announce some sort of capital-raising plan along with its quarterly earnings report.
"Our best guess is that MER will elect to monetize both BlackRock Inc (BLK.N) and Bloomberg prior to the second-quarter earnings release," Whitney said.
Merrill's 49 percent stake in BlackRock is worth roughly $10.2 billion based on BlackRock's market value as of June 30 and it may not be enough to solely generate the desired capital, estimated to be more than $5 billion, she said.
UBS also said Merrill may need some form of capital raise.
Merrill can issue additional common stock, sell its 20 percent stake in Bloomberg, or sell part or all of its about 50 percent stake in BlackRock to raise capital, UBS said.
"But none look great," it added.
One of the major problems facing financial institutions, including Merrill, is that new equity raised is merely going toward plugging holes in company capital structures and not toward funding new growth opportunities, Oppenheimer's Whitney said.
"So after MER reports what we believe will be a loss for the second quarter and a capital raise, it will merely be where it began the second quarter with a book value in the mid-$20s," she added.
Whitney, who maintained her "underperform" rating on Merrill, expects the brokerage to post a second-quarter loss of $4.21 a share, compared with her prior profit view of 20 cents a share.
She widened her 2008 loss estimate for Merrill to $5.37 a share from 45 cents a share.
UBS slashed its price target on Merrill to $35 from $47 and expects it to post a second-quarter loss of $2.20 a share and a full-year loss of $2.55 a share, compared with its prior profit views of 55 cents a share for the quarter and 50 cents a share for the year.
UBS also cut its outlook on JPMorgan, saying though the bank had fared relatively better than most in the financial crisis, it had plenty of vulnerable consumer exposures.
JPMorgan's second quarter will include Bear Stearns consolidation, which UBS expects to be "messy and a drag on results."
UBS lowered its second-quarter profit estimate for JPMorgan to 40 cents a share from 62 cents and 2008 outlook to $2.33 a share from $2.67. It cut its price target on the stock to $37 from $45.
UBS left its second-quarter and 2008 loss estimates for Citigroup unchanged and cut its price target on the stock to $18 from $23.
Shares of Merrill were trading down 1 percent at $31.93 in morning trade on the New York Stock Exchange Wednesday. Citigroup shares were trading up 1.69 percent at $17.42, while JPMorgan was up 4.4 percent at $35.51. (Editing by Vinu Pilakkott)