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March 4 (Reuters) - Wachovia said the first quarter for U.S. investment banks would be one of the worst in several years due to weak volumes and market valuations, and cut its earnings estimates on four U.S. brokers.
Wachovia said valuations for the brokers are at a five-year low, corresponding with expectations of weaker normalized returns.
There is long-term value in the sector but balance sheets have to improve along with the general economic environment, the brokerage said in a note to clients.
"Firms that have managed to grow book, not dilute shareholders, and have better capital positions are likely better positioned to recover faster if/when markets recover," Wachovia said.
It retained an "outperform" rating on Lehman Brothers.
Following are the changes to earnings-per-share estimates on the four investment banks:
COMPANY Q1 2008 2009
Current Prior Current Prior Current Prior Bear Stearns BSC.N $1.36 $2.54 $7.39 $10.64 $9.96 $12.25 Goldman Sachs (GS.N) $2.94 $5.84 $17.14 $20.86 $21.71 $22.49 Lehman Bros LEH.N $1.04 $1.70 $5.52 $6.92 $6.90 $7.38 Morgan Stanley (MS.N) $0.84 $1.47 $4.22 $5.88 $4.76 $6.03 (Reporting by Amulya Nagaraj in Bangalore; Editing by Pratish Narayanan)