Analysts see much higher 2008 losses for Merrill Lynch

July 18, 2008 by · Leave a Comment
Filed under: Industry News 

Editor’s Note: The quicker the investment and commercial banks post their losses the better.  Banks will be in quite a bind if either Bernanke or the next chairman of the Fed will pull a Volcker and raise interest rates to double digits.  With inflation on the rise, at some point the Fed will have to react to either reduce it or break its back if it gets out of control.

Wall Street analysts widened their 2008 loss estimates for Merrill Lynch & Co. on Friday, a day after the investment bank posted a quarterly loss much bigger than market expectations and unveiled plans to sell assets to shore up capital.

Merrill, Wall Street’s third-largest investment bank, posted a $4.9 billion loss on Thursday, racking up losses of $19 billion over the past four quarters, effectively wiping out four years of profit leading up to the year-long credit crisis.

“This company’s earnings power has been severely compromised,” Ladenburg Thalmann analyst Richard Bove said in a note to clients. “Even though it now has exemplary management it could take years for the firm to recover.”

Morgan Stanley analyst Patrick Pinschmidt expects additional writedowns of $3 billion and capital raise of about $4 billion at Merrill in the second half.

“Despite the scale of writedowns and capital raise, the firm has still not turned the corner on managing its risk overhang,” Pinschmidt added.

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

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