May 13 (Bloomberg) -- Oppenheimer & Co. analyst Meredith Whitney cut her earnings estimates for Goldman Sachs Group Inc., Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Morgan Stanley, citing weakness across businesses they operate in.

The outlook for the companies is ``far more bleak than that reflected in the market,'' Whitney said in a report dated yesterday. ``With less than three weeks until the end of the fiscal second quarter, the global capital markets activity for the quarter shows continued weakness,'' she said.

Whitney cut her earnings estimates for the companies by 41 percent on average for the second quarter and 48 percent for the full year. She rates Goldman, Lehman and Morgan Stanley ``perform'' and has an ``underperform'' recommendation on Merrill.

Of the four, Whitney slashed her estimates for Merrill Lynch the most, to 20 cents a share from an earlier prediction of $1.

Under the Financial Accounting Standards Board's rule 159, the banks booked gains on their debt in the first quarter as credit-default swap prices rose, Whitney said. Many of these gains may be reversed in the second quarter, when the prices fell, she said.

Credit-default swaps are used to protect against or speculate on default. They pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.

Goldman Sachs may earn $3.48 a share in the second quarter, down from her previous estimate of $4.09, Morgan Stanley may report $.094 a share from $1.44 and Lehman's estimates were lowered to $0.72 from $1.10, Whitney said.

Goldman fell $1.75, or 0.9 percent, to $190.33 in composite trading on the New York Stock Exchange at 4:10 p.m. Merrill lost 89 cents to $48.26, Morgan Stanley dropped $1.04 to $46.61 and Lehman declined $1.60 to $42.95.

Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

To contact the reporter on this story: Chia-Peck Wong in Hong Kong at cpwong@bloomberg.net.

Last Updated: May 13, 2008 16:11 EDT