More analysts see bleak fourth quarter at Goldman, M.Stanley

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By Anurag Kotoky

BANGALORE (Reuters) - Citigroup's Prashant Bhatia and Bernstein Research's Brad Hintz on Monday joined the ranks of analysts forecasting a fourth-quarter loss at Goldman Sachs , as they expect the company to be hurt by significant writedowns amid weak credit market conditions.

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 since going public in 1999. The analysts' expectations for a loss range between $2.50 per share and 40 cents a share.

Citigroup's Bhatia, who expects fourth-quarter writedowns of $4.4 billion at Goldman, slashed his price target on the company's stock to $125 from $150 to reflect lower estimates.

The analyst expects a fourth-quarter loss of $1.60 a share at the company.

Goldman's investments in Industrial and Commercial Bank of China Ltd (ICBC) <601398.SS> <1398.HK> and private equity exposure are expected to take a heavy toll on the former investment bank as the value of those investments deteriorate.

Bernstein analyst Hintz said Goldman is likely to lose $800 million from its investment in ICBC, due to Chinese bank's declining equity value on the Hong Kong Stock Exchange.

Goldman may also face reduced fixed income sales and trading revenues due to the difficult credit market conditions, Hintz, who expects a fourth-quarter loss of 54 cents a share at the company, said in a note to clients.

M. STANLEY OUTLOOK BLEAK

Morgan Stanley is also expected to be hit hard by the recent turmoil in financial markets across the globe, with Citigroup's Bhatia expecting a loss at the company and Bernstein's Hintz slashing his earnings estimates on the former investment bank.

Citigroup's Bhatia expects a fourth-quarter loss of 5 cents a share at Morgan, hurt by writedowns of $3.5 billion. Earlier, he expected a profit of 75 cents a share.

But Bernstein's Hintz expects Morgan Stanley to do better than Goldman in the current quarter.

"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," Hintz said.

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." Citigroup's Bhatia rates both companies a "buy."

Of the 21 analysts covering Goldman, eight rate it a "buy" or the equivalent, while one analyst recommends selling the stock. The rest rate it "hold." Morgan Stanley is rated "buy" or its equivalent by nine analysts, while ten analysts recommend holding the stock, according to Reuters data.

Since the summer of 2007, Wall Street has been hammered by a sharp pullback in debt markets, which began with mortgage woes and escalated into a credit crisis slowing economic activity around the world.

Goldman Sachs and Morgan Stanley became bank holding companies regulated by the U.S. Federal Reserve in September, after Lehman Brothers failed, Merrill Lynch agreed to be bought and the financial markets spun out of control.

The conversion to bank holding companies, designed to reassure investors, gives Morgan and Goldman full access to Federal Reserve support.

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.

Goldman shares, which have lost more than two-thirds of their value this year through Friday, lost $4.72 to hit a low of $62.01 Monday on the New York Stock Exchange.

Shares of Morgan Stanley, which has lost more than three-fourths of its market value this year through Friday, fell $1.02 to $11.01 Monday.

The broader S&P investment banking and brokerage index <.GSPINVB>, which has lost more almost 75 percent of its value this year, was down more than 5 percent on Monday.

(Editing by Pratish Narayanan)

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