August 5, 2008 / 11:58 AM / 11 years ago

UPDATE 1-Analyst Bove sees Merrill dividend cut soon

(Recasts; adds analyst’s comments)

Aug 5 (Reuters) - Merrill Lynch & Co MER.N may announce a dividend cut soon, according to analyst Richard Bove, who widened his 2008 loss estimate for the Wall Street investment bank and brokerage, saying its balance sheet will weigh on earnings for some time to come.

“The biggest issue for this firm... continues to be: Where will the new profits come from?” the Ladenburg, Thalmann & Co analyst said. “The answer to this question remains difficult to discern since most of the key revenue drivers of the past few years do not look very strong at all.”

Bove also said the dividend on the common stock was “clearly a burden” for Merrill, as the company had an estimated 1.365 billion shares outstanding which was costing Merrill close to $500 million per quarter.

“There seems to be little merit in continuing to make this expenditure. The company has not expressed a desire to cut the payout... My assumption is that a reduction will be announced soon,” Bove wrote in a note to clients.

Bove was one of the first banking analysts to recommend selling financial stocks as credit market problems began last year. Last July, he correctly predicted the booming growth of the financial system could not be sustained by economic growth.

The analyst cut his price target on the stock to $25 from $30, and continued to rate the stock “sell.” He widened his 2008 loss estimate to $7.87 a share from his prior loss estimate of $5.31 per share, and cut his 2009 profit view to $2.40 per share from $3.03.

Among 17 analysts covering Merrill, Bove ranks seventh in accuracy of earnings estimates over the last four fiscal quarters and the last two fiscal years, according to Thomson Reuters data.

Shares of Merrill closed at $26.39 Monday on the New York Stock Exchange. Through Monday, they have fallen 51 percent this year.

Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy

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