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Merrill Profit Warning Rumors Are Not True: Sources

CNBC.com
Friday, 20 Jun 2008 | 9:53 AM ET

U.S. broker Merrill Lynch is not preparing to issue a profit warning Friday, sources tell CNBC.

AP

Rumors of an impending profit-warning and further writedowns sparked a selloff of Merrill Lynch shares and other financial stocks Friday. Recently, Merrill shares were trading down more than 5 percent.

A Merrill Lynch spokeswoman declined to comment on the speculation.

Speculation spread after wire services quoted traders who said there was chatter in the marketplace that Merrill would announce a writedown tied to so-called Alt-A mortgages.

The world's largest brokerage is due to announce second-quarter results next month. Investors are concerned after peers including Lehman Brothers and Morgan Stanley posted weak results this week.

It's not that surprising that there would be questions surrounding Merrill Lynch's earnings. In recent days, analysts have been reducing their estimates for Merrill earnings.

Over the last 30 days, analysts have cut their second-quarter forecasts by an average of 68 percent. Estimates for this year's earnings have fallen a whopping 105 percent, according to Starmine.

On average analysts estimate Merrill will earn 16 cents a share in the second quarter. However, a month ago, analysts had predicted earnings of 44 cents a share.

However, Starmine's SmartEstimate predicts a loss of 53 cents a share.

Merrill has recorded more than $30 billion in writedowns since it reported its third quarter earnings last year and has raised more than $12 billion in capital.

The company's chief executive, John Thain, said last week that Merrill did not need more capital but would consider selling its stakes in Bloomberg and money manager BlackRockif it did.

In a research note last week, analyst Roger Freeman of Lehman Brothers said Merrill appears increasingly likely to raise additional capital.

Freeman also said he expected Merrill to post additional write-downs from collateralized debt obligation and subprime exposure.

--David Faber, Juan Aruego, and Reuters contributed to this report.

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