September 29, 2008 / 12:29 PM / 10 years ago

UPDATE 1-Bernstein narrows Q3 loss estimate for Merrill

(Recasts; adds details)

Sep 29 (Reuters) - Sanford C. Bernstein narrowed its third-quarter loss estimate for Merrill Lynch & Co MER.N, but forecast $4 billion in total writedowns for the investment bank.

The write-down will be partially offset by a $1 billion accounting gain from the valuation of its debt liabilities, the brokerage said.

“With a takeover offer having been extended by Bank of America two weeks ago, we are less concerned that Merrill will be forced to raise additional capital if writedowns this quarter are larger than expected,” analyst Brad Hintz said in a note to clients.

The analyst, who maintains a “market perform” rating and $28 price target on Merrill, narrowed his third-quarter estimate for the bank to a loss of $4.46 a share from $4.80 a share.

During September, corporate credit spreads have gapped out to decade-long highs and volatility levels spiked, Hintz said.

“This will certainly make it difficult for Merrill to report positive results this quarter,” the analyst said.

Merrill Lynch had a significant number of one-time transactions in the second quarter, which will impact its third quarter earnings, he noted.

The critical component in determining the earnings of the firm will be the marks on its over-sized mortgage-related exposures, Hintz added.

Shares of Merrill Lynch closed at $27.36 Friday on the New York Stock Exchange. (Reporting by Adheesha Sarkar in Bangalore; Editing by Anil D’Silva)

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