Merrill Lynch shares fall after reporting results

Merrill Lynch shares fell 55 cents to $30.18 in midday trading.

After the market closed Thursday, Merrill Lynch said it lost $4.89 billion during the second quarter, or $4.97 per share, as it continued to be stung by write-downs tied to deterioration in the mortgage and credit markets.

Analysts polled by Thomson Financial, on average, forecast a loss of $1.91 per share for the quarter.

The brokerage took $9.4 billion of charges and write-downs from mortgage-backed securities, unprofitable hedge positions, and residential mortgage exposure during the quarter ended June 30.

Banks like Merrill Lynch have taken billions of dollars in losses as the value of mortgage-backed securities and other debt has plummeted over the past year. Investors have shied away from purchasing all but the safest debt as mortgages increasingly defaulted last year leading to fears securities backed by the troubled loans would default as well.

"Exposure to risky assets remains Merrill's largest challenge, and we expect this to remain a problem for the next few quarters, barring a substantial improvement in the operating environment," Goldman Sachs Group Inc. analyst William Tanona wrote in a research note.

Merrill said it is selling stakes in media company Bloomberg LP and First Data Services Inc. in an effort to raise capital and shore up its balance sheet. Merrill is expected to raise $7.9 billion from the two sales.

After Merrill Lynch released results, analysts slashed their 2008 and 2009 forecasts for the investment bank as it continues to struggle.

Wachovia Capital Markets LLC analyst Douglas Sipkin cut his 2008 estimate to a loss of $7.30 per share from a loss of $3.11 per share. He now expects Merrill to lose 19 cents per share during the third quarter, down from a previous estimate for profit of 38 cents in the period.

Sipkin also cut his 2009 earnings estimate to $2.82 per share from $3.76 per share.

"The revisions reflect expectations for more losses in collateralized debt obligations and potential parts of residential mortgages," Sipkin wrote in the note.

Collateralized debt obligations are complex financial instruments that combine various slices of debt, and often include portions of mortgage-backed securities.

Sandler O'Neill & Partners LP analyst Jeff Harte now expects Merrill to lose $6 per share in 2008, compared with a previous estimate for a loss of 89 cents per share. He expects the bank to earn $4.15 per share in 2009, down from a prior estimate of $4.62 per share.