Merrill Lynch Expected to Write Down $15 Billion

January 11, 2008 No Comments »

The NYT reported today that Merrill Lynch is expected to announce an enormous $15 billion writedown when it reports earnings next week, according to sources close to the company.

The losses, stemming from bad mortgage bets, are almost double its original estimate, forcing the company to look for additional capital from an outside investor.

The struggling investment bank is reportedly in talks with investors in the United States, Asia, and the Middle East, and is looking to raise $4 billion, in addition to the $5.6 billion stake it sold to Singapore-based Temasek Holdings last month.

In recent months, the Government of Singapore Investment Corporation invested $9.7 billion in UBS, Citigroup sold a $7.5 billion stake to the Abu Dhabi Investment Authority, and the China Investment Corporation invested $5 billion into Morgan Stanley.

Brad Hintz, a securities analyst at Sanford C. Bernstein & Company, believes Merrill will write down its $27 billion of CDO and subprime-related exposures by $10 billion and report a loss of $5.10 a share for the fourth quarter.

“As long as Merrill’s fourth-quarter write-down comes in under $15 billion, the company would remain well capitalized,” Hintz wrote to a client on Thursday. “A $20 billion write-down this quarter or above would significantly increase leverage and would threaten the credit ratings of the firm.”

Additionally, Merrill’s estimated $10 billion fourth-quarter writedown would shrink shareholders’ equity to 12 percent less than rival Goldman Sachs.

Significant, because just two years ago the firm’s assets minus liabilities were on par with Goldman’s, a bank which seems to have avoided the brunt of the mortgage crisis.

And Merrill, whose market value was greater than Goldman’s in 2006, is now worth half as much.

Shares of Merrill Lynch were up $1.77, or 3.40%, to $53.80 in late morning trading on Wall Street, well below their 52-week high of $98.68.

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