UPDATE 1-Oppenheimer cuts earnings estimates on brokers

(Adds details)

May 13 (Reuters) - Oppenheimer cut its earnings estimates
on some U.S. brokers based on its outlook on the capital
markets and sizable estimated revenue reversals due to a new
accounting rule that allows companies to change the way they
value financial securities.

"We expect that most of the gains booked in the first
quarter will be reversed in the second quarter," analyst
Meredith Whitney said in a note to clients.
The Financial Accounting Standards Board (FASB), which sets
accounting rules in the United States, adopted a fair value
option in February that allows companies to irrevocably choose
to record the value of certain financial instruments on their
balance sheets based on what that instrument could be traded
for in a current market transaction.

Under the new rule, losses on securities can be recognized
against retained earnings rather than current earnings.

Over the past three quarters reported, the spreads on the
credit default swaps for the banks and brokers have widened due
to the credit turmoil and liquidity concerns that affected the
industry, Whitney said.

"Companies that adopted fair value accounting on their own
company debt were able to realize gains as a result of the
widening of company credit spreads," she added.

The brokerage cuts its estimates on Goldman Sachs (GS.N),
Lehman Brothers LEH.N, Merrill Lynch MER.N and Morgan
Stanley (MS.N). The following table shows the changes in
earnings estimates:
Broker Q2 EPS FY08 EPS
FY09 EPS

New Old New Old New

Old
Goldman Sachs (GS.N) $3.48 $4.09 $14.65 $17.35
$16.30 $22.25
Lehman Brothers LEH.N $0.72 $1.10 $3.45 $4.43 $4.45
$5.53
Merrill Lynch MER.N $0.20 $1.00 -$0.45 $1.15 $4.05
$5.25
Morgan Stanley (MS.N) $0.94 $1.44 $5.00 $5.85 $5.80
$6.55
(Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by
Amitha Rajan) ((bhaswati.mukho@thomsonreuters.com; within U.S.
+1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters
Messaging: bhaswati.mukho.reuters.com@reuters.net))