Merrill Lynch & Co and UBS AG may suffer respective
first-quarter write-downs of $6.03 bln and $11.06 bln, according to Oppenheimer
& Co analyst Meredith Whitney, who slashed her earnings forecasts for the
banking giants as the credit crisis drags on.
Whitney issued her outlooks late Wednesday, a day after
cutting estimates for Citigroup Inc, Bank of America Corp, JPMorgan Chase &
Co and Wachovia Corp, the four largest
Citigroup’s first-quarter write-down could total $13.12 bln.
The earlier cuts fanned fears that credit and housing crises
will crimp earnings at banks and brokerages for a longer period of time. Major
U.S. financial sector indexes fell 3.5% to 4% on Wednesday, roughly four to
five times larger than the declines in broader
Whitney now expects Merrill to lose $3.00 per share in the
first quarter, after previously forecasting a profit of 45 cents per share. She
also cut her 2008 profit-per-share forecast to 20 cents from $4.00.
According to Reuters Estimates, analysts on average expect
profit per share of 17 cents and $3.82 for the respective periods.
The analyst wrote that Merrill faces write-downs of $1.84 bln
on collateralized debt obligations, $1.17 bln on below-prime “Alt-A”
home loans, $950 mln on leveraged loans to fund buyouts, $571 mln on commercial
mortgages and real estate, and $1.5 bln of other write-downs.
Whitney also wrote that it is unclear whether Chief
Executive John Thain will try to raise more capital, perhaps through hybrid
securities, after having raised $12.8 bln since December. She also said Merrill
faces a “highly disruptive year” of reorganization and downsizing,
coinciding with subdued fixed-income capital markets activity.
UBS, meanwhile, may suffer a first-quarter loss of $2.75 per
share, Whitney wrote. She previously forecast a 72 cents per share profit. The
analyst cut her 2008 profit per share forecast to 45 cents from $3.70.
Whitney wrote that UBS faces write-downs of $6.86 bln on
CDOs, $3.19 bln on “Alt-A” loans, $650 mln on leveraged loans, and
$355 mln on commercial real estate.
UBS has been the European bank hit hardest by the
mortgage crisis. It has reported about $18 bln of subprime-related losses, and
estimated about $80 bln of remaining exposure to other investments that some
analysts and investors consider risky.
Whitney rates both banks “underperform.” She said
Merrill trades at 1.5 times fourth-quarter book value and UBS at 1.6 times,
levels she considers “relatively rich.”
Merrill shares closed Wednesday at $44.42 on the New York
Stock Exchange. UBS shares closed at 29.34 Swiss francs.
