Dec. 20 (Bloomberg) -- Merrill Lynch & Co., the third- biggest U.S. securities firm, may post an additional $8.6 billion in writedowns of subprime-related debt during the fourth quarter, according to an analyst report released today.

The new writedowns would follow a third-quarter $7.9 billion reduction that the firm booked on the value of U.S. subprime home loans and collateralized debt obligations, according to David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller. Trone's estimate is nearly double the $4.5 billion writedown predicted by Citigroup Inc. analyst Prashant Bhatia on Dec. 5.

Merrill ousted Chief Executive Officer Stan O'Neal in October after the firm reported a third-quarter loss, the first in the firm's 93-year history, after taking a total of $8.4 billion in writedowns, including $463 million on corporate loans. John Thain, the former NYSE Euronext CEO who succeeded O'Neal on Dec. 1, will probably report a second consecutive quarterly loss because of further markdowns, Trone and Credit Suisse Group analyst Susan Roth Katzke said.

``We examined the further deterioration in mortgage markets'' and ``concluded that it could take writedowns of $8.6 billion,'' Trone, who rates Merrill stock ``in-line,'' wrote in a note.

Shares in Merrill fell 23 cents to $54.50 at 4:04 p.m. in New York Stock Exchange composite trading. The stock is down 41 percent this year, the biggest annual decline in Merrill's history as a publicly traded company.

Widening Losses

Merrill will probably report a fourth-quarter loss of $4.07 per share because of the writedown, Trone said. He previously expected a $1.51 per share profit.

Katzke wrote that she expects Merrill to take $8 billion in new writedowns during the fourth quarter, boosting her loss-per- share estimate to $4.15 from a previously projected loss of $3.

The new predictions are for a much wider loss than has been expected by the market. The average estimate of 11 analysts surveyed by Bloomberg in the last 28 days is for Merrill to report a $1.58 per-share-loss in the quarter.

Moody's Investors Service said today that it's maintaining a negative outlook on Merrill's senior unsecured debt, which is rated A1. Further writedowns on the firm's collateralized debt obligations, securities backed by pools of bonds and loans, could reduce the firm's tangible equity, Moody's said.

`Further Writedowns'

``The negative outlook is driven primarily by Moody's expectation of further writedowns on the firm's subprime mortgage CDO portfolio and the resulting impact on Merrill's capital adequacy,'' the statement said.

Morgan Stanley, the second-biggest securities firm by market value, and Bear Stearns Cos., the fifth-biggest, both surprised analysts with larger-than-expected fourth-quarter losses this week.

Morgan Stanley reported a $3.61 per share loss, nearly 10 times the 39-cent loss analysts had been predicting. Bear Stearns today reported a loss of $854 million, or $6.90 per share, almost four times wider than the average estimate of analysts surveyed by Bloomberg.

Goldman Sachs Group Inc., based in New York, is the biggest securities firm.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.

Last Updated: December 20, 2007 16:46 EST