Analyst: Merrill Lynch mess not over yet

Merrill Lynch & Co. Chief Executive John Thain shrugged off the company’s first-quarter loss on Thursday, saying Merrill remains “well-capitalized” for the future; but not everyone was so upbeat, according to Crain’s New York Business.
In a note to investors Friday, Oppenheimer & Co. analyst Meredith Whitney questioned Mr. Thain’s optimism, saying Merrill may not have enough cash to weather the rest of the financial storm.
“We are a bit skeptical as to [Mr.] Thains’ claim of no more capital raises given that [Merrill] has burned through most of the capital raised in 2007,” she wrote.
“Given that housing fundamental have yet to improve and the state of the consumer has shown signs of stress, we believe future losses are highly probable and further capital raises will be needed.”
Ms. Whitney, who has issued a series of dire warnings about the financial crisis’ toll on individual banks, maintained her “underperform” rating on Merrill.
Analysts at Lehman Brothers, UBS, JPMorgan Chase & Co. and Sanford C. Bernstein rate the bank “neutral,” while Credit Suisse analyst Susan Roth Katzke rates Merrill “outperform” and Citigroup analyst Prashant Bhatia is telling investors to “buy.”
Merrill reported a first-quarter loss of $1.96 billion, or $2.19 per share, on Thursday, compared with a gain of $2.26 per year in the year-ago period.
The bank wrote down a whopping $6.6 billion for the quarter, as revenue plummeted 69% to $2.93 billion and Merrill said it would likely lay off an additional 3,000 employees.
Still, Mr. Thain was quick to assure investors that the worst was over. Merrill said its liquidity pool remains strong, with holdings around $82 million.
Investors are buying it, even if Ms. Whitney isn’t. Shares of Merrill rose as much as 4.8% to $47.05 in Thursday trading and closed at $46.71. Shares, up 2.75% in Friday trading, are down 13% for the year so far.

Related Topics: Merrill Lynch