Bank of America’s Michael Hecht joins the swelling chorus of bank analysts scrambling to cut estimates ahead of Q3 earnings season. His victims this week are Goldman Sachs (GS) and Morgan Stanley (MS). Hecht is slashing estimates due to a slowing equities market and plunging I-banking volumes.
MORGAN STANLEY: Hecht cuts target from $55 to $52 and reiterates Buy. Cites Morgan Stanley’s reduced reliance on fixed income and expected gains on equity derivatives and other investments:
MS continues to enjoy a premier position in the institutional securities business, maintaining a leading presence in each of its core businesses. We expect MS to deliver the best EPS growth and ROE traction in the group, given continued momentum in its core institutional securities franchise from a renewed focus on right-sizing the firm’s risk appetite and from select investments in the following areas: equity derivatives, proprietary trading, mortgages, and principal investments. Paying off more quickly than expected are investments in improving retail brokerage and asset management (adding alternative investments, both organically and through acquisitions).
GOLDMAN: Hecht cuts target from $192 to $186, and reiterates Neutral. Hecht thinks that Goldman is the “best-positioned” player in I-banking, but that the firm’s high franchise value is already reflected in its valuation:
Best-positioned global player in high-margin investment banking businesses, in our view, with a well-diversified mix of businesses (across products and geographies), including size and breadth of fixed income sales and trading businesses. We believe valuation already discounts the company’s premium franchise value and the still-strong current capital markets environment.
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