SAN FRANCISCO (MarketWatch) -- Merrill Lynch & Co. may record $4.5 billion to $6 billion in write-downs from exposure to mortgage-related securities and troubled bond insurers during the first quarter, analysts said Thursday.
Bernstein Research analyst Brad Hintz expects the brokerage firm to take a $4.5 billion write-down, but noted that there's downside risk to this estimate. He forecast first-quarter earnings of $1.30 a share, down from a previous forecast of $1.60 a share.
Meredith Whitney, an analyst at Oppenheimer & Co., reckons that Merrill will announce $6 billion in write-downs. Her previous estimate was $2 billion. She is now predicting a first-quarter loss of $3 a share vs. a prior estimate of a 45 cents a share profit.
The firm (MER) was one of the largest underwriters of complex mortgage-related securities known as collateralized debt obligations, or CDOs, and built up considerable exposure to these vehicles.
"The critical component in determining the size of the total write-down Merrill takes this quarter will be where the firm values its CDO positions," she wrote in a note.
Merrill also hedged some of its mortgage exposures by buying guarantees from bond insurers. However, some of these guarantees have dropped in value as some bond insurers lost their AAA ratings on concern about their own mortgage losses.
"The firm will likely need to take further valuation reserves for its financial-guarantor counterparty exposures," Hintz said.
Excluding investment banking and troubled areas of fixed income -- such as mortgage-backed securities, CDOs and leveraged lending -- Merrill's other businesses have been solid in the face of the credit crunch, according to the analyst.
"Government and sovereign-trading books, investment-grade corporate debt trading and the Merrill foreign-currency desks are expected to perform very well. Merrill's equity sales and trading business should report strong results as market volatility and trading volumes were strong this quarter," she wrote.
Shares of Merrill traded down nearly 6% at $41.80 in afternoon action. 
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