Analysts see much higher 2008 loss for Merrill

NEW YORK: At least seven analysts significantly widened their 2008 loss estimates for Merrill Lynch & Co yesterday, a day after the investment bank posted a quarterly loss way above market expectations and unveiled plans to sell billions of dollars of assets to shore up capital.

"That management has to hold a yard sale to keep Merrill afloat is troubling enough, and now the margin for error for equity holders is getting precariously thin," Fox-Pitt Kelton analyst David Trone said.

Wall Street's third-largest investment bank said it has completed and is helping finance the long-expected sale of its 20 per cent stake in Bloomberg LP, the news and financial data company, to Bloomberg Inc for US$4.43 billion.

Merrill also said it intends to sell Financial Data Services Inc unit, which provides mutual fund administrative services and retail banking products, to an undisclosed party in a transaction valuing the unit at more than US$3.5 billion.

"The Bloomberg sale is unfortunate," Bernstein Research analyst Brad Hintz. "Nevertheless, Bloomberg was not strategically important. We think the potential Financial Data Services Inc sale is fortuitous."

Merrill, which last November appointed John Thain as its chief executive officer, posted its fourth straight loss as it grapples with huge write-downs of complex debt securities.

Analyst Richard Bove of Ladenburg Thalmann believes that the company's earnings power had been severely compromised. He said even though Merrill now has exemplary management it could take years for the firm to recover.

In the meantime, Banc of America's Michael Hecht does not expect Merrill to return to profitability in 2008.

"Exposure to risky assets remains Merrill's largest challenge," Goldman Sachs analyst William Tanona said. He expects this to remain a problem for the next few quarters, barring a substantial improvement in the operating environment.

Merrill recorded US$9.4 billion of writedowns from exposure to CDOs, residential mortgages, bond insurers and other investments for the quarter. It has written down about US$40 billion since the credit crisis began a year ago, leading to net losses exceeding US$19.2 billion.

"We would prefer to see Merrill rid itself of these assets and clean up the balance sheet; however, this could bring about simultaneous capital needs that could be very costly for Merrill," Tanona added. - Reuters