Goldman, Morgan Stanley 2010 Profit Estimates Are Cut by Meredith Whitney

Goldman Sachs Group Inc. and Morgan Stanley profit estimates were lowered by Meredith Whitney Advisory Group LLC, following similar cuts by other research analysts as markets fell and business demand shriveled.

Whitney cut her estimate for Goldman Sachs’s second-quarter earnings per share to $1.70 from an earlier forecast of $4.75 and reduced her estimate for Morgan Stanley to 40 cents from 68 cents, according to a report from her New York-based firm.

Estimates for earnings have tumbled during recent weeks as stock markets dropped amid a return of risk aversion by investors. Analysts including Douglas Sipkin at Ticonderoga Securities and Guy Moszkowski at Bank of America Corp. have slashed earnings forecasts because of a lower revenue outlook and higher costs related to legal expenses and a U.K. bonus tax.

Whitney’s cuts are “due to a heinous trading environment” and “lower than anticipated investment-banking activity,” she said in the July 7 note to investors.

The second quarter “was the worst quarter for debt and equity underwriting volume in over a year as volatility spiked, and global equity indices recorded the steepest quarterly declines since” the fourth quarter 2008, she wrote.

The average estimate of 18 analysts surveyed by Bloomberg is for New York-based Goldman Sachs to earn $2.30 per share in the second quarter, with forecasts of $1.60 per share to $3.21 per share. Goldman Sachs earned $5.59 per share in the first quarter of 2010 and $4.93 per share in the second quarter of 2009.

Full-Year Estimates

Whitney also lowered her estimates for Goldman Sachs’s third and fourth-quarter earnings to $3.77 and $4.64 from $4.24 and $5.42, respectively. She expects the firm to earn $15.70 in 2010, down from an earlier estimate of $20 a share, while the 2011 forecast was reduced to $19.50 from $22.

The average estimate of 11 analysts is for Morgan Stanley to earn 48 cents, with a range of 39 cents to 58 cents. Last quarter the New York-based firm earned 82 cents a share, while it lost $1.37 a share a year earlier. Whitney cut her full-year 2010 estimate to $2.62 per share from $2.90 and lowered the 2011 estimate to $3 from $3.05.

Whitney has a “neutral” rating on both Goldman Sachs and Morgan Stanley stock.

To contact the reporters on this story: Joshua Fineman in New York at jfineman@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

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