Citi cuts outlook on Lehman, Morgan Stanley, Goldman

Lehman Brothers Holdings Inc (LEH.N), Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) may incur further writedowns, mainly on their mortgage assets, said an analyst at Citigroup, who cut his third-quarter outlook for the U.S. investment banks.
“We are lowering our third-quarter estimates to reflect the difficult operating environment, characterized by lower client-related trading volumes and losses on hard-to-sell assets," analyst Prashant Bhatia wrote in a note to clients.
Bhatia expects Lehman to take fresh asset-related writedowns of $2.9 billion. He expects $1.8 billion in writedowns at Goldman and $1.7 billion at Morgan Stanley.
The analyst, however, said he saw a "lower probability" that Lehman would sell its Neuberger Berman business or raise capital in the near term.
Several Wall Street analysts have been speculating a possible sale of all or a portion of Lehman's asset-management business — a move mentioned in media reports as a possibility for weeks.
Experts estimate the business, whose core is Neuberger Berman, could be worth about $8 billion.
"Even under the potentially more stringent rating-agency guidelines related to the amount of preferred securities in the capital mix, we anticipate that Lehman can absorb over $3 billion of after-tax losses without adding more common equity," Bhatia said.
The analyst widened his third-quarter loss estimate for Lehman to $3.25 a share from 41 cents a share.
He cut his third-quarter earnings estimates for Goldman to $2.50 a share from $4.50, and for Morgan Stanley to 75 cents a share from 76 cents.
Bhatia rates Lehman and Morgan Stanley "buy," and Goldman "hold."
He cut his price target on the shares of Lehman to $35 from $50. Shares of Lehman closed at $13.73 Wednesday on the New York Stock Exchange, while those of Goldman closed at $158.25 and Morgan Stanley at $37.40. (Reuters)