Meredith Whitney, the star banking analyst whose bearish comments this year triggered a $369 billion (£186 billion) drop on Wall Street, said yesterday that she expects losses at Merrill Lynch to increase fourfold in the fourth quarter of the year.

Ms Whitney, an analyst with CIBC World Markets, predicted yesterday that the US investment bank would incur losses per share of about $2.70, compared with a loss of 50 cents a share previously forecast. Merrill Lynch is expected to have incurred losses of approximately $16 billion over the year.

She also said that she expected Merrill to write off another $7 billion of bad investments during the fourth quarter and predicts that the bank will continue to make further writedowns throughout next year.

During the third quarter, the bank wrote off nearly $8 billion of bad investments that it had made in bonds backed by sub-prime mortgages.

Ms Whitney sprang to prominence last month when she said that Citigroup would need to raise more than $30 billion to restore its capital cushion. Her comments prompted a near 7 per cent fall in the bank’s shares that day and contributed to a $369 billion drop in the value of US stocks as investors panicked about the continuing fallout from America’s housing crisis.

Forbes’s second-highest-ranked stockpicker, Ms Whitney received several death threats from Citigroup investors after her gloomy forecast.

On Christmas Eve, Merrill Lynch said that it had raised $7.5 billion in cash to shore up the investment bank’s damaged finances by selling part of its lending business and a stake in itself at a substantial discount. John Thain, the new chief executive of Merrill Lynch, secured a deal to sell a stake worth just under 10 per cent for $6.2 billion to two investors – the Singaporean state-run fund Temasek Holdings and to Davis Selected Advisors, a US fund manager.

Merrill also said it had sold a chunk of its lending business to GE Capital to release $1.3 billion worth of capital.

Ms Whitney welcomed the cash injection, remarking that it was a step towards correcting the bank’s financial footing.

Prashant Bhatia, banking analyst at Citigroup, also cut his price target on Merrill Lynch stock from $85 to $80, blaming the dilution effect of the share sale to the Singaporeans. He told clients that the sale of part of Merrill’s loan book to free up $1.3 billion of capital was just the beginning of the management’s plans to sell off noncore assets.

Shares in Merrill Lynch were broadly unchanged in trading on Wall Street yesterday at $53.95.

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