Merrill Lynch Indicates More Writedowns Amid Scrutiny Over ... Mortgage Debt
November 2, 2007 6:00 p.m. EST
Mayur Pahilajani - AHN News Writer
New York, NY (AHN) - Shares of Merrill Lynch and Co. dropped as much as 11 percent on Friday after an analyst announced that the company could write down up to $10 billion in the fourth quarter. The step can affect other investment banks amid market credit crunch.
The drop was company's biggest fall in the last six years as Deutsche Bank analyst Mike Mayo suggested on Thursday night that the investment bank can writedown for losses on subprime assets.
The market reacted as the news about a possible a regulatory investigation spread across the Wall Street over its handling of mortgage debt and the losses on mortgage backed securities.
"We have increasingly lost confidence in the financials of Merrill," Mayo said. "Merrill may have additional credit rating downgrades and may need to find a partner to give it new credibility and financial strength, if the company is forced to write down the value of its debt holdings."
Mayo had predicted in his Thursday night note that both Merrill and Citigroup could proceed with the mortgage-related writedowns of up to $8 billion together in the current quarter. The other $2 billion were to be shared between Bear Stearns, Bank of America, Wachovia and Morgan Stanley.
In an industry note he said that investment banks and brokers have to share the burden of the writedowns from collateralized debt obligations and other mortgage-backed securities in the fourth quarter.
"Our concern is on relying on a company's statement that has no CEO and is facing a potential SEC investigation and may have engaged in questionable private transactions," Mayo added.