Merrill Lynch & Co. faces a possible third-quarter write-down of as much $4 billion to reflect losses on mortgage-related securities and buyout-financing commitments, a Wall Street analyst predicted yesterday.
Goldman Sachs Group Inc. analyst William Tanona said the write-down, which could exceed those reported by Merrill's main Wall Street rivals, could erase most of the firm's quarterly profit.
Mr. Tanona said he expects Merrill's third-quarter earnings to decline by 89% to $208.9 million, or 15 cents a share, from $1.94 billion, or $2 a share, not counting a gain, a year earlier.
The analyst said he acted based on weak results reported last week by other securities firms whose third quarter ended in August; Merrill's ends in September. He said Merrill "appears to be caught in the cross hairs of a number of headwinds" including losses on loan commitments and mortgages.
This warning about Merrill's earnings illustrates a problem that will happen across the board in the financials this quarter: how will the mortgage/credit market mess impact financial companies' earnings? While we don't know the complete answer to that, we do know the sector has been trading poorly.
For the last three months, the financial sector hasn't really traded in a pattern, but instead has traded within and area of the chart.
On the year to date chart we see the same thing -- no real pattern, no trend and no direction.
Financials are going to have problems through this upcoming earnings season. I don't expect it to be a great time for the industry.
