Morgan Stanley may write down as much as $6 billion

Morgan Stanley may be the next big Wall Street firm to post losses on mortgage-related securities, writing down their value by as much as $6 billion, said David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller.

Trone cut his recommendation on Morgan Stanley, the second-biggest U.S. securities firm, to "in line" from "outperform" today because he expects the company to lose about $4 billion on asset-backed securities and collateralized debt obligations. The remaining losses may be booked on residual mortgage interest and on credit lines to structured investment vehicles, Trone said.

"We suggest an outright avoidance until either management discloses more specific exposure data and it proves smaller than we thought, or they actually take writedowns big enough to get beyond this," Trone wrote in a note to clients.

Morgan Stanley's competitors including Merrill Lynch & Co., the third-largest securities firm, and Citigroup Inc., the biggest U.S. bank, have announced writedowns after revising the value of mortgages or bonds backed by loans. The companies are getting stuck with losses after a surge in U.S. mortgage defaults lowered the value of the securities.

Merrill ousted CEO Stan O'Neal on Oct. 30 after posting a $2.24 billion third-quarter loss that included an $8.4 billion writedown for subprime mortgages, asset-backed bonds and loans gone bad. In December, O'Neal paid $1.3 billion for mortgage lender First Franklin Financial Corp., the 10th-largest originator of subprime mortgages, just as the business was souring.

Merrill is the third-biggest U.S. securities firm after Goldman Sachs Group Inc. and Morgan Stanley.

Citigroup Inc., the world's biggest bank, may have losses from asset-backed bonds of as much as $13.7 billion, roughly equal to the company's profit so far this year. Its shares fell for a sixth straight day.

The bank may have to write down an additional $2.7 billion of subprime mortgage-backed and related securities, CreditSights Inc. said today. Citigroup said on Nov. 4 that securities it holds may have lost $11 billion of value, prompting rating companies to downgrade its credit and precipitating the ouster of Chief Executive Officer Charles O. "Chuck" Prince III.

Additional writedowns may balloon to $21.1 billion if off-balance-sheet units are included, according to analysts David Hendler, Richard Hoffman and Pri de Silva in New York.