Dec. 4 (Bloomberg) -- Wall Street's four-biggest securities firms had their earnings estimates cut by JPMorgan Chase & Co., which said additional writedowns on fixed-income assets and a slowdown in mergers and acquisitions will hurt profit.
JPMorgan analysts led by Kenneth Worthington said New York- based Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. will probably face weak credit markets for the next two to three quarters.
``We expect writedowns of fixed-income inventory and a slowdown in M&A,'' Worthington wrote.
Securities firms and banks have announced more than $50 billion of losses and writedowns for assets linked to the collapse of the U.S. subprime mortgage market this year. Merrill, UBS AG and E*Trade Financial Corp. have ousted their chief executive officers as a result, and Morgan Stanley and Bear Stearns Cos., the fifth-biggest U.S. securities firm, sacked No. 2-ranked executives.
JPMorgan, which is also based in New York, lowered its 2008 earnings estimate for Goldman, the biggest securities firm by market value, to $22.57 a share from $23.50. The bank said Morgan Stanley, the second-biggest of the top four, will probably earn $6.35, instead of the $7.05 estimate JPMorgan previously expected.
Merrill's estimate dropped to $7.82 from $8.05 and Lehman's fell to $7.03 from $7.35.
Goldman Pick
Worthington said JPMorgan favors New York-based Goldman because it's the ``most diversified by product and geography and least dependent on the mortgage business.''
Goldman shares are the only ones to show a gain this year among the biggest U.S. securities firms, rising 14 percent through yesterday. Morgan Stanley is down 23 percent in 2007, Merrill lost 37 percent, and Lehman dropped 21 percent. Bear Stearns Cos. has declined 40 percent this year.
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1 comment:
Large writedowns reflect failed risk-management and business strategies and should negatively impact valuation longer term.
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