Coming to Wall Street - a $10B hit

Deutsche Bank analyst sees mortgage fallout affecting earnings through end of year; Merrill, Citi to be hit hardest.

By Grace Wong, CNNMoney.com staff writer

LONDON (CNNMoney.com) -- Banks are likely to mark down another $10 billion of mortgage assets in the fourth quarter, according to one analyst's estimates.

Deutsche Bank analyst Michael Mayo said in a note Thursday that banks and brokerages are likely to see their earnings pressured through the rest of 2007.

An analyist said Wall Street can expect another $10 billion in writedowns from mortgage-related assets this year.
An analyst said Wall Street can expect another $10 billion in writedowns from mortgage-related assets this year.
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Merrill (green), Citigroup (aqua) and Bear Stearns (yellow) have all fallen about 30 percent in the last six months.

Merrill Lynch & Co. Inc. (Charts, Fortune 500) and Citibank Inc. (Charts, Fortune 500) are expected to be hit the hardest. Mayo estimated each bank would write down $4 billion in the fourth quarter.

He said Bear Stearns Cos. Inc. (Charts, Fortune 500), Morgan Stanley (Charts, Fortune 500), Bank of America Corp. (Charts, Fortune 500) and Wachovia Corp. (Charts, Fortune 500) are also likely to take markdowns.

Banks have taken massive hits from risky mortgage securities in the third quarter. Merrill Lynch wrote down $7.9 billion, and Citi took a $2.2 billion markdown due to mortgage-backed securities and credit trading losses.

Fears of more writedowns have stoked credit worries and raised investor anxiety. The Dow Jones industrial average plummeted 362 points on Thursday - its fourth-biggest point decline of the year - and kept falling on Friday.

Stocks in the financial services sector led declines. Merrill stock sank 8 percent in morning trading on Friday. Citi shares fell about 2 percent and are at their lowest level in more than four years.

The pain from the subprime wipeout isn't likely to abate anytime soon. Mayo said mortgage problems could cut bank earnings by 10 to 25 percent over the next two to three years.

The crisis has turned up the heat on Wall Street CEOs. Merrill chief executive Stanley O'Neal stepped down earlier this week amid mounting criticism of the firm's risk management practices. Citi's Chuck Prince and Bear Stearns' James Cayne are also facing scrutiny. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.