Aug. 20 (Bloomberg) -- Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. had their earnings estimates reduced by Sanford Bernstein & Co.'s Brad Hintz, at least the third analyst to lower profit predictions this week.

Lehman will probably post a third-quarter loss of $1.40 a share, Hintz said in a research note today, compared with the 74-cent profit he previously estimated for the New York-based company. He cut his estimate for Goldman and Morgan Stanley, the two-biggest securities firms, by more than 20 percent.

Hintz joined rivals in reducing third-quarter estimates for banks and brokerages as mortgage-asset values continue to drop and demand for the firms' services fades. The world's largest finance companies have taken more than $500 billion of writedowns and credit losses since the beginning of last year, according to data compiled by Bloomberg.

``We still do not think that the brokerage stocks are out of the woods,'' Hintz wrote, referring to the declining value of their collateralized debt obligations and residential and commercial mortgages and real estate. He predicts Morgan Stanley's shares will outperform the Standard & Poor's 500 Index and Lehman's and Goldman's will roughly match its performance. The firms report earnings next month.

Lehman rose 66 cents to $13.73 at 4:03 p.m. in New York Stock Exchange composite trading. Goldman, the world's biggest securities firm, climbed 25 cents to $158.25, and No. 2 Morgan Stanley declined 68 cents to $37.40.

Goldman, Morgan

Hintz said Goldman may earn $2.50 a share in the third quarter, 25 percent less than Bernstein previously predicted. Morgan Stanley may earn 81 cents, a 22 percent reduction. Both firms are based in New York.

``The fixed income environment substantially weakened this quarter,'' Hintz wrote.

Yesterday, Goldman Sachs analyst William Tanona reduced earnings estimates for banks and brokerage firms and recommended that investors buy shares in Morgan Stanley while selling Citigroup Inc. He cut his estimate for Morgan Stanley's third- quarter earnings per share to 85 cents from a prior estimate of $1.10. Lehman will probably post a loss of $2.75 per share instead of the earlier estimate of a 68-cent profit, he said.

``A major recovery is still a few quarters away, as we anticipate additional asset sales and writedowns in coming quarters,'' Tanona wrote. ``We assume no or negative earnings for the majority of firms in our universe this quarter.''

Merrill Estimate

Merrill will probably lose $4.75 per share instead of the $4.40 loss Tanona predicted earlier, according to the note. Citigroup is now expected to break even for the third quarter instead of generating 17 cents a share and JPMorgan will probably earn 40 cents a share instead of 64 cents, the note said.

Analysts including Merrill's Guy Moszkowski, Oppenheimer & Co.'s Meredith Whitney and Deutsche Bank AG's Mike Mayo cut profit estimates last week, and predicted further writedowns on mortgage-related bonds.

Moszkowski, rated the top analyst covering brokerages in an annual survey by Institutional Investor magazine, last week lowered Goldman, Lehman and Citigroup to ``underperform'' and said ``conditions have deteriorated significantly from July.''

Oppenheimer's Whitney and Deutsche Bank's Mayo last week cut their profit estimates for Goldman, citing weaker revenue from underwriting and equity capital markets. Mayo also reduced his earnings projections for Morgan Stanley. Lehman analyst Jason Goldberg reduced his earnings projection for JPMorgan Chase & Co.

JPMorgan, the second-biggest U.S. bank by market value, on Aug. 11 said it had a $1.5 billion loss on mortgage-backed assets since the start of the third quarter. JPMorgan shares dropped 9 percent on Aug. 12, the steepest decline in six years.

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net.

Last Updated: August 20, 2008 16:14 EDT