NEW YORK (Reuters) -
Merrill Lynch's agreement to sell
$30.6 billion of toxic securities gives away the bank's
potential profits on the securities and leaves it on the hook
for most of the risk, strategists at Bank of America wrote on

Merrill Lynch & Co Inc (MER.N) has financed 75 percent of
the sale of the securities, meaning it is on the hook if the
assets decline by more than 5 cents on the dollar, Bank of
America strategist Jeffrey Rosenberg wrote.

Merrill agreed earlier this week to sell the $30.6 billion
portfolio of collateralized debt obligations to private equity
firm Lone Star Funds for 22 cents on the dollar, or $6.7

Analysts, including Rosenberg, initially reacted positively
to the deal, and Merrill's shares rose nearly 8 percent on
Tuesday, even though the investment bank sold $8.55 billion of
new shares to raise capital after selling the assets at a loss.

Citigroup analysts called the asset sale a "watershed

But Rosenberg wrote Wednesday that "perhaps the initial
euphoria over Merrill's asset sale and capital raise ...
overstates the positive implications."

In a report entitled "On Second Thought ... " Rosenberg
wrote, "Merrill now finds itself effectively in the position of
having sold off its upside but retaining its downside."

Because Merrill is still exposed to losses, the asset sale
can't be seen as a sign the financial sector has finally
touched bottom as some analysts have suggested, Rosenberg

Merrill shares rose 63 cents, or 2.4 percent, to $26.84 on
the New York Stock Exchange on Wednesday.

(Reporting by Elinor Comlay; editing by Jeffrey Benkoe)