Sector snap: Investment banks mostly rise

Investment bank stocks mostly rose Wednesday, in line with the broader market, even as a Goldman, Sachs & Co. analyst cut his second-quarter profit estimates on a handful of banks, noting an extremely challenging operating environment.

"Unlike recent quarters where poor results were driven primarily by asset write-downs, second-quarter 2008 results are likely to suffer from a combination of slower client and investment banking activity, poor principal and proprietary trading results, basis risk on hedging activity and losses from the tightening of certain structured credit liabilities," wrote analyst William F. Tanona in a note to clients late Tuesday.

Tanona subsequently chopped his second-quarter earnings estimate on Bear Stearns Cos. to 60 cents per share from $2.35 per share. Analysts polled by Thomson Financial, on average, estimate second-quarter earnings of $1.61 per share.

Bear Stearns lost 8 cents to $10.07 in midday trading.

Tanona also reduced estimates on Lehman Brothers Holdings Inc. and Morgan Stanley. He expects a loss of 20 cents per share at Lehman Brothers, compared with a prior estimate of a profit of $1.35 per share. At Morgan Stanley, Tanona forecasts earnings of 80 cents per share, down from a previous estimate of $1.60 per share.

Analysts polled by Thomson Financial, on average, estimate second-quarter earnings of $1 per share at Lehman Brothers and $1.25 per share at Morgan Stanley.

While Tanona expects investment bank stocks to remain volatile over the next couple of quarters, he said the longer term trend for the group is higher, as many of the Federal Reserve's actions should help to improve economic conditions later this year and in early 2009.

Morgan Stanley and Lehman Brothers remain his favorites.

Some investment bank stocks were also lifted by gains in the broader market Wednesday after the Labor Department released a better-than-expected report on consumer prices, mitigating some of investors' concerns about inflation.

Morgan Stanley shares added 60 cents to $47.21. Lehman Brothers gained 23 cents to $43.18.

Merrill Lynch & Co. shares rose 70 cents to $48.96.