UBS widens Goldman Q4 loss view, sees loss at M.Stanley

BANGALORE (Reuters) - Goldman Sachs (GS.N) is likely to post a huge fourth-quarter loss of $5.50 a share, while rival Morgan Stanley (MS.N) could post a loss of $1.10 a share, an analyst at UBS said.

UBS expects $4.0 billion in mark to market losses at Goldman, and write-downs of about $800 million from its investments at Industrial and Commercial Bank of China Ltd (ICBC) (601398.SS) (1398.HK).

"Although we lowered our estimates just a month ago, we think capital markets conditions in November have turned out worse than we anticipated and we expect both Goldman Sachs and Morgan Stanley to incur meaningful losses for the quarter," UBS said in a note to clients.

Goldman's investments in ICBC and private equity exposure are expected to take a heavy toll on the former investment bank as the value of those investments deteriorate. The value of the Chinese bank's equity had declined significantly on the Hong Kong Stock Exchange in the past few months.

"These mark-to-market hits will coincide with soft equity trading, very light investment banking activity, and declines in asset management and prime brokerage revenues," the brokerage said.

For Morgan Stanley, the brokerage now expects a fourth-quarter loss of $1.10 a share, compared with a profit estimate of 20 cents a share.

Separately, S&P Equity Research also forecast a loss of $3.25 a share for Goldman Sachs, saying it expected write-downs to mortgage, leveraged loan, and principal investments.

In a research note dated December 1, Credit Suisse forecast a quarterly loss of $4 a share for Goldman Sachs, reflecting cost of asset-price declines, less investment banking and lower asset levels in prime brokerage and asset management.

Over the past few weeks, several analysts at brokerages, including Fox-Pitt Kelton and Citigroup, have forecast that Goldman will post a fourth-quarter loss, the first ever since going public in 1999.

Credit Suisse analyst Susan Roth Katzke, who rates Goldman "outperform" slashed her price target on the stock to $140 from an earlier range of $175 to $200.

BANK HOLDING CO STATUS TO HURT

The change to a bank holding company model will prove costly for former investment banks Goldman Sachs and Morgan Stanley, an analyst at Bernstein Research said.

The regulators will force the two companies to employ less leverage, maintain more liquidity, limit illiquid business commitments and tightly control counterparty risk, analyst Brad Hintz said.

"The Federal Reserve is a more intrusive regulator than the Securities and Exchange Commission and establishing the commercial bank infrastructure to report to the Federal Reserve, the Office of the Comptroller of the Currency and the New York State Bank authorities will be costly," he said.

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 (LEHMQ.PK) failed, Merrill Lynch MER.N 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.

Hintz rates Goldman Sachs "market-perform" and Morgan Stanley "outperform."

Shares of Goldman Sachs were down 2 percent at $64.72 in morning trade on the New York Stock Exchange, while those of Morgan Stanley were up about 3 percent at $11.72.

(Editing by Vinu Pilakkott, Jarshad Kakkrakandy)