Bove: Merrill Will Raise New Equity in Q3

(Reuters) – Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) will be forced to raise equity in the third quarter and may sell 20 percent of its holdings in Bloomberg for $1 billion, Ladenburg Thalmann analyst Richard Bove said.

This would bring in cash, allow the company to value the remaining position in Bloomberg at $4 billion and solve the near-term capital issue, the analysts said in a note.

“I do not believe that the company will issue equity,” he said in a note to clients.

“My estimate is that the firm could show a net negative revenue number of $2.5 billion in its principal transaction line or a figure consistent with the first-quarter result,” Bove said.

He expects the world's largest brokerage to post a 2008 loss of $1.64 a share, compared with his prior view of a profit of $1.37 a share. He cut his 2009 profit estimate for the company to $3.27 a share from $3.68.

Bove lowered his price target on Merrill shares to $30 from $39 and maintained his “sell” rating on the stock.

Last week, analysts at Goldman Sachs, Sanford C. Bernstein and Lehman Brothers forecast a second-quarter and 2008 loss for Merrill Lynch.

Lehman analyst Roger Freeman said Merrill will likely incur $5.4 billion of write-downs in the second quarter, one of the highest yet for the company.

Shares of Merrill closed at $32.70 Friday on the New York Stock Exchange. Through Friday, they have plunged 39 percent this year.

(Reporting by Neha Singh in Bangalore; Editing by Vinu Pilakkott)