August 22, 2008 / 7:40 AM / 11 years ago

BofA cuts Goldman, Morgan Stanley earnings outlook

(Reuters) - Banc of America Securities analyst Michael Hecht cut his earnings outlook on U.S. investment banks Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) to reflect a tough fixed-income sales and trading environment, and a downward trend in equity markets.

“...We still believe Goldman and Morgan Stanley stand to benefit from stronger customer flow activity as other firms face more substantial de-leveraging pressures, but still not enough to offset recent cyclical and seasonal pressures across most capital markets businesses the last three months,” the analyst said.

He cut his third-quarter earnings estimate on Goldman to $2.50 a share from $3.98, and on Morgan Stanley to 85 cents a share from $1.02.

Hecht, however, said he expects Morgan Stanley to deliver the best earnings-per-share growth and return-on-equity traction in the group, given continued momentum in its core institutional securities franchise.

He cut his price target on the shares of Morgan Stanley to $52 from $55 and maintained his “buy” rating on the stock.

Hecht cut Goldman’s price target to $186 from $192, maintaining his “neutral” rating.

Since the start of this month, analysts at Merrill Lynch, Fox-Pitt, Bernstein, Citigroup and Lehman have cut their estimates for Goldman and Morgan Stanley.

Shares of Goldman closed at $156.42 Thursday on the New York Stock Exchange, while those of Morgan Stanley closed at $37.06.

Reporting by Neha Singh in Bangalore; Editing by Vinu Pilakkott

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