March 28 (Bloomberg) -- Losses from subprime home loans may make Merrill Lynch & Co. bonds riskier than debt issued by Bear Stearns Cos., the biggest U.S. underwriter of mortgage bonds, Bank of America Corp. analysts said.
Merrill may have the most potential for losses from so- called collateralized debt obligations, or CDOs, that repackage bonds backed by mortgages, analysts led by Jeffrey Rosenberg in New York wrote in a research note dated yesterday. Among those mortgages are subprime loans.
``The relative exposure to Merrill is likely understated,'' Rosenberg said in an interview. Underwriting data ``suggest Merrill Lynch has the most exposure of the brokers to subprime through the origination of CDOs,'' his team wrote.
Merrill arranged $46 billion in structured-finance CDOs last year, garnering 24 percent of the market, according to data in the Bank of America report. Citigroup Inc. was second, with $21.3 billion, or 11 percent. Bear Stearns was 10th on the list, packaging $9.4 billion of the deals, or 4.9 percent.
Merrill's ``relative absence'' from CDOs backed by corporate loans, the second-largest part of the CDO market, ``suggests fairly concentrated market exposure to the structured-finance segment,'' the analysts wrote.
The firm's profits also may be hurt by its $1.3 billion purchase of First Franklin Financial Corp., the nation's 10th- largest originator of subprime mortgages as of September, the analysts said.
``You may not have a revenue issue, and you may not therefore have an equity market issue, but you may have a credit issue because you have a balance sheet issue,'' Rosenberg said in the interview.
