Ahead of their second-quarter earnings reports in mid-June, Sanford C. Bernstein analyst Brad Hintz yesterday became the latest analyst to cut estimates on financial services firms that include Lehman Brothers Holdings Inc., Goldman Sachs Group Inc. and Morgan Stanley, according to Crain's New York Business.
With the companies’ second quarters wrapping up this week, Mr. Hintz lowered his second-quarter earnings forecast for Lehman to 15 cents per share from $1.38 per share, citing “hedging-related difficulties in fixed income.”
Mr. Hintz reduced his forecast for Goldman to $3.25 per share from $3.70 per share and for Morgan Stanley to $1.05 to $1.38, describing a difficult environment in the second quarter.
“In the first three weeks of [March,] the Street witnessed the collapse of Carlyle Capital, the forced liquidation of Peloton Partners and the ‘shotgun marriage’ of Bear Stearns and J.P. Morgan,” Mr. Hintz wrote in a note to clients.
The analyst says banks that included March in their first quarter highlighted the weakness of that period.
Last week, Ladenburg Thalmann analyst Richard Bove slashed his ratings on Goldman, Lehman and Merrill Lynch & Co. to "sell" from "neutral" and earlier this month, Citigroup analysts lowered expectations for Lehman, Goldman and Morgan Stanley, citing a tough operating environment.
For his part, Mr. Hintz explains that the troubled cash sectors of the market, which includes sub-prime mortgage-backed securities and leverage loans, will result in weak fixed-income results.
He expects investment banking revenue to be down 30% from year-ago levels at these firms, despite quarter-over-quarter improvement in the debt markets.
Mr. Hintz said equity sales and trading revenues will be strong, and noted that Morgan Stanley and Goldman should have benefited from the “volatile commodities market.”
Still, he said, “at this point, all the major brokers continue to have significant exposure to asset classes that have been significantly written down over the past three quarters and remain relatively uncertain.”
Mr. Bernstein has an “outperform” rating on Morgan Stanley, noting a “diverse business mix.” He rates both Lehman and Goldman “market perform.”
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