Merrill , the world's largest brokerage, is also expected to post additional write-downs in net collateralized debt obligation (CDO) and subprime exposures, partially offset by gains in "Alt-A" and commercial mortgage-backed securities, Freeman said. (See the accompanying video for more.)
"At this point, we expect Merrill to report a modest loss, due mainly to incremental reductions in carrying values related to monoline hedges on asset-backed securities CDOs that we expect the firm to have to take," he said.
The analyst forecast a second-quarter loss of 64 cents a share for Merrill, compared with his prior view for a profit of 27 cents a share. He cut his price target on the stock to $47 from $49.
He rates Merrill "equal-weight." Freeman also forecast a loss of 53 cents a share for all of 2008. His prior estimate was for a profit of 40 cents a share.
Merrill is at risk of underperforming its peers in the near term as earnings estimates for its second quarter come down, he said.
Shares of Merrill closed at $36.28 Thursday on the New York Stock Exchange.