Jan 18 (Reuters) - Banc of America Securities cut its price target and 2008 earnings view on Merrill Lynch & Co MER.N, after the world’s largest brokerage reported about $16 billion in mortgage-related write-downs and adjustments on Thursday in the worst quarter of the company’s history.
Merrill’s fourth-quarter net loss was $9.8 billion, compared with a year-ago profit of $2.3 billion.
BofA analyst Michael Hecht said while Merrill had taken important steps to shed a majority of its “toxic” inventory, it was “not completely out of the woods.”
Merrill still has some large exposures including $4.8 billion in asset-backed securities/collaterized debt obligations, $13.8 billion to financial guarantors via credit default swaps and $18 billion in commercial real-estate, Hecht noted.
He cut his price target on Merrill to $65 from $70 and lowered 2008 earnings view to $4.10 per share from his earlier view of $5.70 per share.
“Merrill is the most levered large investment bank to the equity market and, hence, a downward trending market could hurt them the most,” Hecht said in a note dated Jan. 17.
He maintained a “buy” rating on Merrill and said significant stock buybacks should enhance returns, adding to return on equity over the next couple of years. (Reporting by Nachiket Kelkar in Bangalore; Editing by Himani Sarkar)