UBS Warburg Cuts Merrill Outlook

Analyst Diane Glossman says the firm's heavy reliance on retail business will weigh on earnings

UBS Warburg cut estimates on Merrill Lynch (MER ).

Analyst Diane Glossman says the company's environment deteriorated in June vs. May, which suggests further challenges for investment banks in their quarterly reports that include the month of June. She notes Merrill Lynch's shortfall is considerably deeper than its peers, and she chalks this up to greater dependence on transactional retail business, a different calendar period, and a less efficient business model. She says it also points out a likely return-on-equity of 10%-11% this quarter, compared with mid- to high-teens for most peers.

Glossman cut the $3.70 2001 EPS estimate to $3.10, and cut the $4.35 2002 estimate to $3.85. She also trimmed the $65 target to $60, and maintains her hold rating.

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