Merrill shares sink in sympathy with Lehman

A Merrill Lynch sign is seen in Toronto, April 29, 2008. REUTERS/Mark Blinch

NEW YORK (Reuters) - Shares of Merrill Lynch & Co Inc MER.N dropped on Friday on concern that the bank could go the same way as Lehman Brothers LEH.N, which saw its stock fall to multiyear lows on talk that it is being forced to sell.

Merrill shares were down more than 11 percent at $17.23 in early trading, while Lehman Brothers fell 14.2 percent to $3.62.

Merrill is seen as having similar problems to Lehman Brothers, so it makes sense that its share price will fall in line with Lehman Brothers, investors said. Both banks have large holdings of toxic debt that they have been looking to sell, and both have struggled to raise capital.

Not everyone, however, believes Merrill shares will follow Lehman Brothers’ low enough to spark takeover talk or involve the U.S. Treasury.

“I think Merrill Lynch has obviously had some difficulties, but I think this is an overreaction on the street,” said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

“I am not as worried about the future of Merrill Lynch as I am about Lehman Brothers,” he added.

Merrill Lynch Chief Executive John Thain in July arranged to sell $30 billion of complex debt securities to a private equity firm. The deal came with a write-down of more than $5 billion, and Goldman Sachs’ analyst William Tanona last week warned the bank may have to write down more assets in the third quarter.

The struggling U.S. firm has already written more than $40 billion since the credit crisis began over a year ago.

The bank’s share price has fallen 68 percent this year.

Reporting by Elinor Comlay; Editing by Lisa Von Ahn