Citigroup, Goldman, others downgraded by Merrill
NEW YORK (Reuters) - Four of Wall Street's biggest investment banks were downgraded on Wednesday by an analyst at Merrill Lynch & Co, who said the global credit crisis has worsened and may prompt investors to try to avoid the carnage.
Citigroup Inc (C.N), Goldman Sachs Group Inc (GS.N) and Lehman Brothers Holdings Inc LEH.N were downgraded to "underperform" and Morgan Stanley (MS.N) was cut to "neutral" by Merrill analyst Guy Moszkowski.
The analyst also cut his third-quarter and 2008 earnings forecasts and his price targets for the banks, and also for JPMorgan Chase & Co (JPM.N). He maintained a "neutral" rating on JPMorgan.
"Conditions have deteriorated significantly from July," Moszkowski wrote. "The typical summer slowdown has been exacerbated by renewed fear over credit, the direction of the economy, and home price depreciation, along with the sudden about-face in the oil price and hedge-fund losses on unusual market patterns."
Moszkowski said many investors now find it too difficult to value assets that banks hold. He said this has caused many "to just give up for the time being, pulling in their horns in an attempt to avoid further damage."
The downgrades came a day after JPMorgan shares fell 9.5 percent following the bank's surprise disclosure of $1.5 billion of losses this quarter alone stemming from wider yield premiums on mortgage-backed securities and loans.
JPMorgan had so far sidestepped some of the problems that prompted rivals such as Citigroup, Wachovia Corp WB.N and Merrill itself to raise billions of dollars of capital to shore up their balance sheets. Many financial services companies have also slashed their dividends to preserve capital.
"The reality of the credit crisis isn't over," said Bart DiLiddo, chairman of VectorVest Inc, an Akron, Ohio-based research firm. "The housing market hasn't bottomed yet. These banks aren't going to become real money-makers for a while."
Analysts including Oppenheimer & Co's Meredith Whitney, Deutsche Bank Securities Inc's Michael Mayo and Lehman's Jason Goldberg have also lowered their earnings forecasts for various banks this week.
Meanwhile, Wednesday marked the first day of trading after the expiration of a U.S. Securities and Exchange Commission rule to protect 19 financial services companies by thwarting a form of short selling, a bet that stocks will decline.
Prior to Wednesday, Moszkowski had rated Goldman and Morgan Stanley "buy," and Citigroup and Lehman "neutral."
In afternoon trading, shares of Citigroup were down 62 cents, or 3.3 percent, at $17.92; Goldman fell $1.86, or 1.1 percent, to $165.44; Lehman was down 65 cents, or 4 percent, at $15.56; Morgan Stanley dropped $2.28, or 5.4 percent, to $40.22, and JPMorgan fell 73 cents, or 1.9 percent, to $37.19.
(Additional reporting by Deepa Seetharaman; editing by John Wallace)
