Brokerages Wilt on Analyst Gloom

Investment bank shares took hits Tuesday as analysts expressed concerns about deteriorating business conditions. The sector shuddered after JPMorgan (JPM) analysts said the big houses might write down more subprime losses, Goldman (GS) cut its 2007 and 2008 operating earnings estimates for S&P 500 members to reflect profit shortfalls, and Punk Ziegel analyst Richard Bove cut his ratings on Bear Stearns (BSC), Goldman and Lehman (LEH). "The nature of the core businesses operated by the brokers has turned negative basically across the board," Bove wrote. "Assets will shrink. Product lines will be cut back. Personnel will be let go. This is not a time to be buying these stocks." "We haven't found all the skeletons yet," said Rick Campagna of Provident Investment Counsel. "Until credit loosens up, you can't get a solid footing in the market." Following the analyst notes, Goldman fell 5%, Lehman 2.9%, and Bear Stearns 4.9%. Financial companies are down a collective 19% on the year following more than $60 billion in subprime-linked writedowns at banks and securities firms, though the S&P 500 Financials Index has rebounded almost 7% from a two-year low last week on expectations of a Fed rate cut. "What we've had really is a hysterical exit from the financial stocks," said Michael Metz, chief investment strategist at Oppenheimer Holdings. "I think they still go lower."

Sources: Bloomberg, Dow Jones, MarketWatch, AP, TheStreet.com
Additional Reading: January Effect Trading Opportunities in Financials

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