Brokerage Earnings to Drop -- Lehman

U.S. brokerage stocks traded broadly to the downside Thursday, on a warning from Lehman Brothers' analysts about Q3 earnings amid ongoing market turmoil. The firm cut its second-half and 2008 estimates for brokerage firms Goldman Sachs, Morgan Stanley, Merrill Lynch and Bear Stearns. "We believe that third-quarter earnings will be significantly impacted by the dislocation in the credit and asset-backed/mortgage markets, only partially offset by strength in currencies, rates and commodities as well as decent equities comparisons and favorable investment banking conditions at least through July," the analysts said in a research note. The note also said Lehman has "limited conviction about 2008 ... sitting here at the end of August with a wall of worry to climb between now and October." Merrill Lynch analysts lowered their estimates for brokerages on Tuesday. Separately, Standard & Poor's said it won't change its ratings on Barclays, in spite of reports about its exposure to structured investment vehicles. S&P said Barclays "benefits from its broad and diversified range of businesses ...", but mentioned it will closely watch the situation. On Thursday, shares of Goldman Sachs lost 1.4% to $171.38, Morgan Stanley -1.7% to $60.16, Merrill Lynch -1.3% to $72.18, Bear Stearns -0.4% to $106.70 and Barclays -2.8% to $47.72.

Sources: Bloomberg, MarketWatch I, II
Commentary: Moody's: I-Banks Are Safe. Standard & Poor's: Not Necessarily • Fundie Analysts and Merrill's I-Bank Downgrade • U.S. Investment Banks: Brave Investors May Be Rewarded Handsomely
Stocks/ETFs to watch: GS, MS, MER, BSC, LEH, BCS. ETFs: IAI, KCE, XLF
Earnings call transcript: Goldman Sachs F2Q07, Morgan Stanley F2Q07, Merrill Lynch Q2 2007, Lehman Brothers F2Q07

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