Jan. 11 (Bloomberg) -- Merrill Lynch & Co.'s fourth-quarter writedown, estimated by analysts to be at least $10 billion, would shrink shareholders' equity to 12 percent less than Goldman Sachs Group Inc.'s.

Just two years ago, Merrill's shareholders' equity -- the firm's assets minus liabilities -- was on par with Goldman's, data compiled by Bloomberg show. Now, Merrill's weakened financial position compared with its more-profitable rival is forcing the world's largest brokerage to seek cash infusions from outside investors, slash bonuses and sell assets.

The fourth-quarter charges, the largest in the New York- based firm's 94-year history, will follow $8.4 billion of writedowns from the prior quarter that led to a $2.2 billion net loss. Merrill Chief Executive Officer John Thain, the former head of the New York Stock Exchange and Goldman president until 2004, is faced with a capital shortage even as Goldman, the biggest U.S. securities firm, gets stronger.

``The firms continuously writing assets down keep seeing their borrowing costs increase,'' said Punk, Ziegel & Co. analyst Richard Bove. ``Those that aren't seeing the write-offs can borrow cheaper, which makes them more profitable. Going forward, the more profitable one will expand faster.''

Analysts' estimates of Merrill's writedown range from $8.3 billion, by Bank of America Corp.'s Michael Hecht, to $12 billion, by Prashant Bhatia at Citigroup Inc. The New York Times reported today that Merrill may write down its assets by $15 billion.

Singapore's Money

Jessica Oppenheim, a Merrill spokeswoman, declined to comment.

Merrill's shareholder equity probably fell 2 percent in the fourth quarter to $37.8 billion, assuming a writedown of $10 billion for subprime home loans and mortgage-linked securities, Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, estimated in a Jan. 10 report.

The figure includes last month's $6.2 billion investment from Singapore's Temasek Holdings Pte. and New York-based money manager Davis Selected Advisors LP.

Thain told fixed-income managers last month to cut 2007 bonuses by an average of 40 percent, two people briefed on the matter said Dec. 17. Payments may fall by as much as 80 percent for traders who specialize in the mortgage bonds and collateralized debt obligations that posted the steepest losses, the people said.

Asset Sales

Thain is seeking to repair the damage done by his predecessor, Stan O'Neal, who pushed Merrill into home loans by buying subprime lender First Franklin Financial Corp. for $1.3 billion at the end of 2006 just before the mortgage market peaked. O'Neal was forced to step down in October, when the firm announced its third-quarter loss.

Last month, the company sold Merrill Lynch Life Insurance Co. and ML Life Insurance Co. for $1.25 billion, freeing up about $800 million of equity capital. The firm raised another $1.3 billion by selling Merrill Lynch Capital, a financier of medium-size companies, to a unit of General Electric Co. Merrill agreed this week to divest its 20 percent stake in GSO Capital Partners LP as part of the fund's sale to Blackstone Group LP for as much as $930 million.

Merrill dropped about 43 percent in New York trading during the past 12 months. The shares rose $2.66, or 5.1 percent, to $54.69 at 4 p.m. in New York Stock Exchange composite trading.

Merrill, whose market value was greater than Goldman's as recently as 2006, is now worth half as much.

Blankfein's Bonus

Goldman, based in New York, reported a 22 percent jump in earnings last year while profit tumbled at competitors like Morgan Stanley and Bear Stearns Cos. amid losses related to subprime mortgages.

Goldman Chief Lloyd Blankfein claimed a $67.9 million bonus, the biggest ever awarded to the CEO of a Wall Street firm, after delivering a record profit as investor aversion to mortgage-related securities prompted a contraction in global credit markets.

Merrill is a passive, minority owner of Bloomberg LP, the parent of Bloomberg News.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: January 11, 2008 16:47 EST