(Changes source; adds analysts’ comments, background)
Nov 15 (Reuters) - At least three brokerages said Merrill Lynch & Co Inc’s MER.N appointment of John Thain as its new chief executive was a positive move, with Credit Suisse upgrading the world’s largest brokerage to “outperform” from “neutral”.
Merrill Lynch on Wednesday named NYSE Euronext NYX.N Chief Executive John Thain as its new CEO, bringing in an outsider with a Goldman Sachs (GS.N) pedigree to repair an image battered by wrong-way bets on subprime mortgages.
Punk Ziegel analyst Richard Bove in a note titled “A Win” said Thain’s appointment was a big plus for the company since Thain appears to have the necessary characteristics to solve the company’s key problem, which is its risk management business.
“However, Mr. Thain is not a miracle worker and the markets Merrill serve must improve before the stock becomes a buy,” said Bove who has a “sell” rating on the stock.
Credit Suisse analyst Susan Katzke said she now has greater confidence that the stock will achieve her price target, which is in the range of $80 to $85 and represents an upside of more than 40 percent from Wednesday’s closing price of $57.98 on the New York Stock Exchange.
Merrill shares are down 38 percent this year, erasing about $31 billion in shareholder value. This compares with a 10 percent decline for the sector as measured by the Amex Securities Broker-Dealer Index .XBD, which includes peers such as Lehman Brothers LEH.N and Bear Stearns Cos Inc BSC.N.
Credit Suisse’s Katzke expects more management changes across the organization and a more substantial shortfall in Merrill’s fourth quarter earnings.
She reduced her fourth quarter estimate to a loss of $3 a share from a profit of $1.25 a share based on her view that the firm’s collateralized debt obligations and subprime inventory had deteriorated further in value.
For the third quarter, Merrill posted a $2.3 billion loss, mostly because of bad bets on subprime mortgage-related assets. It was the worst loss in the company’s history, triggering the ouster of its CEO and Chairman Stan O’Neal.
Banc of America said it viewed Thain’s appointment as “the best of both worlds for Merrill as Thain’s background makes him well suited as a replacement for O’Neal, while the firm is able to maintain highly touted executive Lawrence Fink as CEO of asset manager partner BlackRock.” (Reporting by Nivedita Gupta in Bangalore; Editing by Bernard Orr)