Citigroup slashed its earnings outlook for Wall Street investment banks, Goldman Sachs Group Inc, Lehman Brothers Holdings Inc and Morgan Stanley, citing a tough operating environment.
The second quarter has seen lower client-related trading volumes, little banking activity, losses related to ineffective hedging and reversals of gains on fair valuing liabilities, Prashant Bhatia wrote in a note dated May 16.
He expects significant asset sales related to leveraged loan inventory, and commercial and residential mortgages as a result of a greater degree of liquidity in the marketplace. "We expect the brokers may take some losses to exit concentrated positions," Bhatia said.
"While the environment seems to have improved considerably in May, it will not offset the considerable weakness in March and April," he added. The analyst rates Lehman and Morgan Stanley "buy," and has a "hold" rating on Goldman Sachs.
Shares of Goldman Sachs closed at $187.14 on May 23 on the New York Stock Exchange. Shares of Lehman closed at $43.64, while Morgan Stanley shares closed at $47.21.