Ahead of the Bell: Merrill Lynch

Wachovia Capital Markets LLC analyst Douglas Sipkin is the latest analyst to cut his view on Merrill. Sipkin now expects Merrill to lose $2.16 per share in the second quarter, compared with a previous estimate for profit of 63 cents per share.

Sipkin slashed his full-year estimate to a loss of $3.11 per share from profit of 15 cents per share.

Analysts polled by Thomson Financial, on average, forecast Merrill Lynch will lose $1.74 per share in the second quarter and $2.35 per share for the year. A month ago, analysts expected Merrill Lynch to earn 31 cents per share in the second quarter and 17 cents per share for the year.

Merrill Lynch will have to take an additional $5 billion in write-downs during the second quarter because of continued deterioration in the credit markets, Sipkin wrote in a research note. Banks have been forced to cut the value of various types of debt, including mortgage-backed securities and collateralized debt obligations, since the middle of 2007 as investors have shied away from purchasing all but the safest types of investments.

Collateralized debt obligations are complex financial instruments that combine various slices of other debt.

Merrill has already taken about $29 billion in write-downs since the middle of 2007.

Those write-downs will be the key contributor to losses in the second quarter and force the bank to raise new cash to shore up its capital base, Sipkin wrote in the note.

With a stock offering likely to be very dilutive, Sipkin said Merrill might sell a portion of its stake in investment manager BlackRock or media company Bloomberg.

Merrill is said to be examining the sale of stakes in the companies. A spokeswoman has declined to comment about numerous media reports. However, Chief Executive John Thain in the past has said he is open to selling the stakes if Merrill can get a good price.