August 20, 2008 / 1:16 PM / 11 years ago

UPDATE 1-Bernstein cuts outlook on U.S. investment banks

(Adds details, background)

Aug 20 (Reuters) - Lehman Brothers Holdings Inc LEH.N may post a third-quarter loss and incur fresh write-downs of about $3 billion, according to Sanford C. Bernstein & Co analyst Brad Hintz, who also cut his earnings estimates for Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N).

Weakening credit market conditions in the third quarter indicate that more write-downs and hedging failures will likely impact U.S. investment banks’ performance for the period, the analyst said Wednesday.

“We expect the quarter will again be characterized by mark-to-market valuation adjustments in mortgage-backed securities, commercial mortgage-backed securities and collateralized debt obligations holdings, as well as ineffective hedge performance,” Hintz wrote in a note to clients.

Fixed income environment “substantially” weakened this quarter, and spreads for many credit market instruments are approaching their March highs, he added.

The analyst forecast a third-quarter loss of $1.40 a share for Lehman. He earlier saw a profit of 74 cents a share for the fourth-largest U.S. investment bank.

Hintz is the latest in a string of Wall Street analysts to forecast a third-quarter loss at Lehman. Since last month, his rivals at Merrill Lynch, Deutsche Bank, Fox-Pitt and J.P. Morgan Securities have forecast a quarterly loss for Lehman.

Bernstein’s Hintz also reduced his third-quarter earnings estimates for Goldman to $2.50 a share from $3.35, and for Morgan Stanley, to 81 cents a share from $1.04.

According to Reuters Estimates, analysts expect Lehman to post a third-quarter loss of 95 cents a share, while Goldman is expected to earn $3.05 a share and Morgan Stanley is seen earning 88 cents a share.

For 2008, Hintz cut his earnings outlook for Goldman to $14.50 a share from $15.34, and for Morgan Stanley to $4.50 a share from $4.73.

He widened his 2008 loss estimate for Lehman to $4.65 a share from his prior estimate of a loss of $2.24 a share.

Analysts expect Lehman to post a loss of $4.78 a share for 2008, while Goldman is expected to earn $15.90 a share and Morgan Stanley is seen earning $4.45 a share, according to Reuters Estimates.

Hintz rates Lehman and Goldman “market perform,” and has an “outperform” rating on Morgan Stanley.

He cut his price target on Lehman to $28 from $45.

Shares of Lehman closed at $13.07 Tuesday on the New York Stock Exchange, while those of Goldman closed at $158 and Morgan Stanley at $38.08. (Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy)

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