Dec 4 (Reuters) - A slowdown in the U.S. retail brokerage businesses is inevitable, although the duration is hard to predict, an analyst at Bernstein Research said.
The analyst also lowered his 2009 and 2010 earnings estimates for Morgan Stanley (MS.N) and Merrill Lynch MER.N, both of which have a huge exposure to the retail brokerage industry. [ID:nWNAB9585]
The rot born out of the credit crisis continues to spread throughout the economy and there is a general belief that the worst is not over, analyst Brad Hintz said.
"As such, we believe the retail slowdown will be long and severe and based on our historical analyses, a recovery will not occur until macro indicators improve, months after a recovery in the equity markets," he wrote in a research note.
The U.S. securities industry faces the first global economic slowdown in modern times and this is certainly not a favorable environment for the two surviving capital markets firms -- Goldman Sachs (GS.N) and Morgan Stanley, Hintz said.
Former investment banks Goldman Sachs and Morgan Stanley became bank holding companies regulated by the U.S. Federal Reserve in September, after Lehman Brothers LEHMQ.PK failed, Merrill Lynch agreed to be bought and the financial markets spun out of control. Over the past month, several analysts have forecast a loss at Goldman Sachs and Morgan Stanley, given the deteriorating global capital markets.
However, the two giants will survive the "presumably painful" crisis with government support and relatively modest legacy exposure positions, Hintz said.
He expects credit markets to begin their recovery by the third quarter of 2009.
"This recovery and the expected gross domestic product (GDP) improvement in late 2009 will likely drive an improvement of high margin merger and acquisition activity as GDP growth accelerates in 2010," Hintz said. (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar)