An analyst cut earnings estimates Thursday on both Goldman Sachs Group Inc. and Morgan Stanley, saying the pair face continued challenges in the current credit environment.
William Blair & Co. analyst Mark Lane cut his fiscal second-quarter earnings estimate for Goldman Sachs to $3.30 per share from $4.49 per share. He cut his estimate for Morgan Stanley to 85 cents per share from $1.13 per share.
Both Goldman Sachs and Morgan Stanley's fiscal second quarters end May 31.
At Goldman Sachs, Lane said the investment bank has been particularly slow in its investment banking segment along with certain trading segments, including fixed income, currency and commodities.
"While investment banking activity was not that dissimilar to the first quarter, customer engagement was adversely impacted in March and April by market disruptions related to the collapse of Bear Steams," Lane wrote in a research note. "Lower customer engagement is the primary difference versus trends in the first quarter, in our opinion."
Lane said Morgan Stanley's earnings will be hindered by the bank's exposure to residential and commercial mortgages. But, Lane added that Morgan Stanley has been extremely aggressive in reducing its risk profile.
Investment banks have struggled in recent quarters due to a strong migration by investors to only the safest types of debt. That has forced investment banks to cut the value of their riskier holdings and look for new cash to shore up their capital bases.
Shares of Goldman Sachs fell $4.45, or 2.3 percent, to $185.68 in afternoon trading. Morgan Stanley shares rose 3 cents to $46.99.
Terms & Conditions
RSS Headlines
Fool UK