Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. had their second-quarter profit estimates cut by Bank of America Corp. and Sanford C. Bernstein analysts on the risk of further asset writedowns, Bloomberg reports.
Bank of America’s Michael Hecht lowered his estimate for Lehman to a loss of 50 cents a share from a previous prediction of 76 cents in earnings. Morgan Stanley was reduced to 95 cents from $1.40, and Goldman was trimmed to $3.45 a share from $3.75. For all three of the New York-based banks, the fiscal second quarter ends this week.
Lehman, the largest underwriter of mortgage bonds before the subprime market collapsed, has been the laggard of Wall Street this year as it struggles to shed its portfolio of assets related to home loans and convince investors that writedowns so far have been as realistic as its peers. The value of the assets of the large U.S. investment banks is about 20% lower than what is stated on their balance sheets, the Bank of America report said.
“We believe this will continue to be a key reason why investors continue to stay on the sidelines” when it comes to investing in brokers and that they will “at least not dive head first into the group for reasons like `the group looks cheap’ or has `bottomed-out’ from a valuation perspective,” Hecht writes.