Bear, Lehman, Citi shares fall on Merrill downgrade

NEW YORK (Reuters) - Shares of Bear Stearns Cos Inc BSC.N Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) fell on Tuesday after Merrill Lynch & Co analysts downgraded the companies to "neutral" from "buy" and lowered estimates for the banks' earnings.

Lehman fell 4 percent to $55.31, Citigroup fell 2.2 percent to $46.74, and Bear fell 2.1 percent to $109.80 in morning trading on the New York Stock Exchange.

All three banks are wrestling with credit and mortgage market difficulties, Merrill analysts led by Guy Moszkowski said.

Citi will likely have to write down the value of commitments it made to help finance leveraged-buyout deals, and is likely making fewer mortgage loans and packaging fewer home loans into bonds, the analysts wrote.

Lehman and Bear's earnings are likely to be hurt by "what is increasingly clearly a post-bubble depression in the mortgage industry and weakness in the corporate credit business as well," the analysts said.

That's a bigger drag on earnings for Bear than Lehman, because Lehman is better diversified, Merrill said.

Merrill cut its third-quarter Bear earnings estimate to $1.67 per share from $2.54, and its 2008 estimate to $12.07 per share from $14.38.

Merrill said Lehman's securitization business is likely to suffer in the third quarter, and said the investment bank is expected to write down some of its mortgage holdings and commitments for leveraged-buyout financings.

Merrill cut its expected third-quarter earnings for Lehman to $1.29 per share from $1.77, and estimated 2008 earnings to $6.80 per share from $8.68.