Merrill Lynch Could Take Further Writedowns

by Stewart Douglas

Story link: Merrill Lynch Could Take Further Writedowns

Troubled investment bank Merrill Lynch was today under fire again, with market analysts suggesting it may need to take further losses beyond the $8.4 billion writedowns announced earlier in the week in order to reflect the extent of its sub-prime linked exposure.

The Wall Street investment outfit saw its shares hit again today following the announcements, which suggested that the writedowns would have to be supplemented further in future results in order to mark the true extent of its losses over the period.

Share prices were down just under 4%, after the fall of 6% seen on Wednesday after the initial writedowns were reflected in its $3.5 loss on Q3.  It is thought that the realisation of further losses from the sub-prime linked investments will necessitate a further writedown over the year end, which could further result in losses over the next quarter.

Analysts today have criticised management and risk diversification at Merrill Lynch, citing overly risky investment decisions as the driving force behind the losses, putting it in a similar category to Citigroup, which was also a notable heavy loser in the sub-prime fallout. 

Fellow investment bank Goldman Sachs have downgraded shares in Merrill Lynch from their previous ‘buy’recommendation, with the anticipation of a further $4.5 billion of losses to be taken over the end of the year.

It is rumoured that the news today could see a reorganisation of Merrill Lynch at a senior executive level, in order to settle shareholders and stabilise share prices over the short term.

It is thought that any further writedowns could devalue Merrill Lynch by up to 10%, which could ultimately make it an attractive rebound investment over the medium term as it regains profitability.