Merrill CEO may face new write-downs

By Elinor Comlay - Analysis

NEW YORK (Reuters) - For some time Merrill Lynch CEO John Thain has been stressing the brokerage does not need to take more write-downs or raise more capital, but his confidence may have been misplaced.

Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) was rumored to be close to issuing a profit warning on Friday and a day after Citigroup warned of substantial second quarter write-downs.

The talk was taken seriously by investors, who pushed the shares down 4.6 percent on Friday on growing concern about the investment bank's exposure to complex debt securities and derivatives known as collateralized debt obligations (CDOs).

The Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) warning, which came in an investor conference call, had been based on similar concerns. If the fears with Merrill turn out to be justified, the bank may again have to raise capital, a move Thain said was not necessary as recently as last week.

But investors have heard that from Thain before. In April, he told the Nikkei newspaper Merrill had plenty of capital and did not need more. A few days later, he made similar comments during a trip to Japan. Two weeks later, Merrill raised $2.55 billion from selling preferred securities.

"If someone tells me that they don't need to raise capital, that everything's OK, I am not quite believing them," said Jim Huguet, co-CEO of asset manager Great Companies.

Thain has also given an inconsistent message on whether Merrill would raise money through the sale of another big asset, its 20 percent stake in news and financial provider Bloomberg LP. In April, he said he had no plans to sell the stake, but earlier this month, he said he would consider such a move.

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