August 12, 2008 / 6:01 PM / 11 years ago

UPDATE 1-Fox-Pitt: Merrill could cut dividend by half

(Recasts; adds details, share movement)

Aug 12 (Reuters) - Merrill Lynch and Co Inc MER.N could cut its dividend by half to further boost its capital position, Fox-Pitt analyst David Trone said.

Merrill shares fell as much as 6 percent in early trade, but later pared some of its early losses and were down about 4 percent in the afternoon session.

“As the bottom line of Merrill is again likely to be hit by multi-billion dollar write-downs, Merrill should cut its annual dividend to recapitalize its balance sheet,” Trone said.

By cutting its annual dividend of $1.40, Merrill could add $1.1 billion a year in capital, Trone wrote in a note to clients.

The Fox-Pitt analyst said if Merrill shies away from such a cut, then it would end up paying about half the estimated earnings for 2009 in dividends — an “unusually high” payout compared with its peers.

In July, Merrill sold more than $8.55 billion in common shares to boost its capital after selling $30.6 billion in repackaged debt at a fire-sale price.

He has an “in line” rating and a target price of $29 on the stock.

Shares of Merrill Lynch were down $1.00 at $25.14 Tuesday on the New York Stock Exchange. They earlier touched a low of $25.00. (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar, Anil D’Silva)

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