Merrill, Brokers May Have To Reverse 1Q Acctg Gains: Analyst
>>>Already posted???<<<
DOW JONES NEWSWIRES
May 13, 2008 9:16 a.m.
NEW YORK (Dow Jones)--Merrill Lynch & Co. (MER) will likely have to reverse some of the $2.1 billion in gains it booked from the declining value of its debt in the first quarter, and other brokers may make similar reversals, an analyst said Tuesday.
Merrill booked the gain under a mark-to-market accounting rule that allows companies to take gains when the value of some of the long-term debt they issue declines. Under the same rule, Citigroup Inc. (C) booked $1.3 billion in revenue during the first quarter, while Morgan Stanley (MS) booked $848 million, Lehman Brothers Holdings Inc. (LEH) booked $600 million and Goldman Sachs Group Inc. (GS) booked $300 million.
A Merrill Lynch spokeswoman wasn't immediately available to comment.
A reversal of those accounting gains would compound the problems the brokers face as they try to replace the revenue they got from the market for structured investment products that screeched to a halt during the credit crunch. "The outlook for the group is far more bleak than that reflected in the market," Oppenheimer & Co. analyst Meredith Whitney said, and she cut her 2008 profit estimates for Merrill, Goldman, Lehman, and Morgan Stanley by an average of nearly 50%, and also sharply reduced her second-quarter and 2009 profit estimates for the group.
"We expect that most of the gains booked in 1Q08 will be reversed in 2Q08," Whitney said. She said this will happen because the spreads on the credit default swaps that triggered the accounting gains have narrowed again. |
