Monday, November 03, 2008

Goldman Sachs (NYSE:GS): Merrill Lynch calling for negative Q4 EPS

Merrill Lynch is out with a big slash on Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS):

GS 4QE (Nov) to -$0.49 from $2.98 and MS 4QE to $0.36 from $0.72. Key driver is terrible recent global equity market performance. Effect magnified at GS by significant exposure via prop, Pvt. Equity businesses, though equity rebound by 11/30 could change picture. Also, MS may have more comp. leverage given better 2H result, larger YTD accrual.

Trading volume surges on de-lev’g, but marks outweigh
Fixed Inc. trade volumes up sharply as de-leveraging triggered trading activity across Treasuries (+20%), MBS (+29%) Inv. Grade (+10%). But spreads gapped significantly from previous highs as credit markets seized in Sep: High Yield spreads +723bps and Inv. Grade spreads, +193bps QTD. Equity mkts have fallen sharply (S&P 500: -25%, NASDAQ: -27%), on very strong volumes (NYSE: +43%, NASDAQ: +22%).

Inv. Banking hurts as M&A weak; Debt U/W abysmal
M&A closings down 25% sequentially to $472bn, Anncts. also down following marquee deals last quarter (-18%). Annc’d/Completed ratio for 4Q is running 1.4x, indicating pick-up in backlogs. M&A fee backlog now $7.3bn, up 2.3% from 3Q end, but down 7.6% from last month, and off 21% from Oct-07. Equity U/W running down 43% QTD (-55% YoY), with Int’l driving weakness (-74% seq.). US up 52% on weak 3Q, though lucrative IPO business fell to zero QTD. Debt U/W extremely weak.

Goldman Sachs (NYSE:GS) price tgt is cut to $100 from $159. Morgan Stanley (NYSE:MS) tgt remains at $25.

Notablecalls: Phew, this is a BIG cut. One has to embrace the fact MER is calling for negative EPS in Q4 for GS. Yes, n e g a t i v e!

I see GS going below $90 level today.

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