November 17, 2008 / 1:32 PM / 11 years ago

UPDATE 2-Bernstein sees loss at Goldman, cuts M. Stanley view

(Recasts; adds more analyst comments, background, Citi price target cut)

Nov 17 (Reuters) - Bernstein Research analyst Brad Hintz became the latest to join the ranks of analysts expecting a fourth-quarter loss at Goldman Sachs (GS.N), as he expects the company to be hurt by writedowns amid weak credit market conditions.

Hintz, who also slashed his earnings estimates on Morgan Stanley (MS.N), expects the former investment banks to suffer as global economic conditions continue to deteriorate.

Separately, reported that Citigroup cut its price target on Goldman shares to $125 from $150.

Shares of Goldman fell 5 percent before the bell, while those of Morgan Stanley slid 3 percent.

Bernstein’s Hintz expects Goldman Sachs to post a fourth-quarter loss of 54 cents a share, hurt by writedowns related to its investments in Industrial and Commercial Bank of China Ltd (601398.SS) (1398.HK) (ICBC) and its private equity holdings.

Goldman is likely to lose $800 million from its investment at ICBC, due to the company’s declining equity value on the Hong Kong Stock Exchange, Hintz said.

Goldman may also face reduced fixed income sales and trading revenues due to the difficult credit market conditions, Hintz, who had earlier expected a fourth-quarter profit of $2.12 a share at the company, said in a note to clients.

Over the past two weeks, a slew of analysts at brokerages including Fox-Pitt Kelton and UBS have forecast that Goldman will post a fourth-quarter loss, which would be its first ever as a public company. The analysts’ expectations for a loss range between $2.50 per share and 40 cents a share.


“Because Morgan Stanley is less reliant on capital intensive trading revenues than Goldman Sachs, Bernstein expects Morgan Stanley’s results will be stronger than Goldman’s this quarter,” Bernstein’s Hintz said.

But he cut his fourth-quarter estimates on Morgan Stanley to 30 cents a share from $1.12 a share, citing a “difficult operating environment” during the quarter.

Hintz prefers Morgan Stanley over Goldman Sachs for its greater revenue diversification, lower reliance on capital intensive trading revenues and the earnings stability that its retail brokerage business provides.

The analyst has an “outperform” rating on Morgan Stanley, while he rates Goldman Sachs “market-perform.”

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 MER.N agreed to be bought and the financial markets spun out of control.

The change, effectively killing off the investment banking model that had dominated Wall Street for more than 20 years, enabled Goldman and Morgan Stanley to take deposits, gain easier access to financing and gave them more flexibility to buy retail banks.

On the investment banking front, the current quarter was weak for the two surviving securities firms with weak underwritting volumes, analyst Hintz said.

“The potential for negative marks remains real as hedge funds, banks and other institutions continue to de-lever their balance sheets,” he said.

While mergers and acquisition advisory revenue is likely to hold up the quarter, it is not likely to offset the weakness from the underwriting side of the business, Hintz said.

Goldman shares closed at $66.73 Friday on the New York Stock Exchange, while those of Morgan Stanley closed at $12.03. (Reporting by Anurag Kotoky in Bangalore; Editing by Pratish Narayanan)

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