Merrill may still sell BlackRock, CreditSights says

Merrill Lynch Chief Executive Officer, John Thain, poses before a news conference in Mumbai in this May 7, 2008 file photo.

NEW YORK (Reuters) - Merrill Lynch & Co MER.N may still be forced to sell its valuable stake in fund manager BlackRock to bolster its balance sheet, research firm CreditSights said in a report.

Merrill, Wall Street's third-largest investment bank, posted a $4.9 billion loss on Thursday and sold its 20 percent stake in Bloomberg LP back to the news and financial data company for $4.43 billion to raise capital.

The latest results mean Merrill has racked up losses of $19 billion over the past four quarters, effectively wiping out four years of profit leading up to the year-long credit crisis.

The BlackRock stake "may be in play if hot stove losses continue, even though the company indicates otherwise," CreditSights analyst David Hendler co-wrote in a report, released late Thursday.

Merrill Chief Executive John Thain last month said a sale of its nearly 50 percent stake in BlackRock Inc (BLK.N) was possible. On Thursday, Thain told reporters that Merrill decided against a BlackRock sale because it was a strategic asset.

Merrill's stake in BlackRock is currently worth about $12 billion.

Thain called the latest results "difficult and disappointing."

At least seven analysts also significantly raised their 2008 loss estimates for Merrill Lynch on Friday. For details, see <ID:nBNG112908>.

"This company's earnings power has been severely compromised," Ladenburg Thalmann analyst Richard Bove said in a note to clients. "Even though it now has exemplary management it could take years for the firm to recover."

He increased his 2008 loss estimate for Merrill by more than three-fold to $5.31 from $1.64 a share. He has a "sell" rating on the stock and $30 price target.

Merrill, which last November appointed Thain as its chief executive officer, posted its fourth straight loss as it grapples with huge write-downs of complex debt securities including collateralized debt obligations.

It is trying to bolster its capital position by selling the Bloomberg stake and through the intended sale of its Financial Data Services Inc unit.

Banc of America analyst Michael Hecht said it was unlikely that Merrill would return to profitability in 2008 and raised his loss estimates to $7.66 from $1.57 a share for the year.

He cut his price target by $8 to $47 and kept a "buy" rating on the stock.

Hecht said Merrill's core businesses generated $7.5 billion in second-quarter revenue excluding markdowns, "not too shabby considering the environment." He also viewed Merrill's nearly 50 percent stake in fund manager BlackRock Inc (BLK.N) as a positive.

In early trading, shares in Merrill Lynch were down 3.5 percent at $29.66 while shares in BlackRock were unchanged at $208.77.

(Reporting by Walden Siew in New York and Varsha Tickoo in Bangalore; Editing by Tom Hals)