July 7, 2008 / 2:04 PM / in 10 years

UPDATE 1-Merrill may write down about $6 bln in Q2: Citigroup

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July 7 (Reuters) - Merrill Lynch & Co MER.N may write down about $6 billion in the second quarter primarily driven by losses on high-grade collateralized debt obligations (CDOs) positions and monoline exposure, said analyst Prashant Bhatia at Citigroup.

Bhatia, who now has the highest second-quarter writedown estimate for Merrill among brokers, also forecast a second quarter loss for the quarter and widened his 2008 loss per share view.

He said said the writedown estimate for the second quarter comprised of $4.8 billion on super senior CDO long positions, offset by roughly $2 billion of gains on short positions with non-monoline counterparties and $2.2 billion on credit valuation adjustments related to financial guarantors.

“We estimate $500 million of marks on subprime whole loans, $300 million on private equity positions, and $200 million on debt revaluation,” Bhatia said in his note dated July 6, which highlighted the second quarter preview for Merrill.

Bhatia also forecast a second quarter loss of $3.95 at Merrill, and widened his 2008 loss per share estimate to $6 from $1. He cut his price target on the stock to $65 from $75, while rating it a “buy.”

    Shares of Merrill rose 1.5 percent to $31.59 in morning trade on the New York Stock Exchange.

    Bhatia said Merrill has raised $600 million more capital than it has lost since 2007 and that a sale of the company’s stake in BlackRock Inc (BLK.N) could generate more than $2.5 billion in capital.

    Bhatia believes Merrill would most likely sell a portion of its stake in order to avoid raising capital and further diluting its investors.

    Merrill, the world’s largest brokerage, has a nearly 50 percent stake in money manager BlackRock. Merrill Lynch’s stake in BlackRock currently has a market value of roughly $11 billion, Bhatia noted. (Reporting by Ramya Dilip in Bangalore; Editing by Bernard Orr)

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