![]()
- US Top Banks Warn Congress on 'Break-Up' Risks
- Fed's Kohn Sees No Asset Bubbles Building in US
- Stocks May Rise Further after Fed Waves on 'Risk Trade'
- Buffett's Berkshire Hathaway Boosts Stake in Wal-Mart
- Microsoft Co-founder Allen Diagnosed with Cancer
- Time Warner to Spin Off AOL on December 9
- Gates Boosts Waste Management, Coca Cola Stakes
- US Cities With Most Underwater Mortgages
- What's Kept Stock Rally Going? Fear, Not Confidence
- Answers to Your Questions: A Path to Economic Disaster?
- 5 Ways to Play the Chinese Markets: Analyst
- Meredith Whitney: Turns Bearish
- 3 Stock Plays on Rising College Costs
- Warren Buffett's Berkshire Hathaway Almost Doubles Wal-Mart Holdings During Summer
- Nov. 16: Unusual Volume Leaders
- Getting to the Heart of the Merck-Abbott Embargo Break
- What MGM's Sale Could Say About Value of Content
- My Ratings on Lowe's & Home Depot: Analyst
MOST SHARED
- Stocks Overvalued, Recession Will Return: Meredith Whitney
- Has Twitter's Finest Hours (Seconds) Come and Gone?
- Warren Buffett's Berkshire Hathaway Almost Doubles Wal-Mart Holdings During Summer
- U.S. May Wind Up Green With Envy
- BofA Ex-Counsel: I Was 'Stunned' When I Got Fired
- CNBC Video: Warren Buffett & Bill Gates - Keeping American Great
- Time Warner to Spin Off AOL on December 9
- Solar Emerges From A Dark Period
- Millions May Have to Repay Part of Obama Tax Credit
- Paulson Betting Unemployment Not Getting Much Worse?
Morgan Stanley analysts Monday told clients to "sell the rally" in financial stocks, slashing forecasts for big bank earnings and warning that the current credit crunch is only just beginning.
![]() |
The analysts expect higher loan losses and expenses, offset by higher net interest income, though profits could fall further still if the Federal Reserve stops lowering interest rates.
"More capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline," analysts led by Betsy Graseck wrote in a report.
"We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91." A growing number of investors, and industry executives including Morgan Stanley Chief Executive John Mack, in recent weeks have predicted markets are closer to the end of the current mortgage and corporate credit crisis than to the beginning.
These more upbeat comments, and recent efforts by banks to bolster their balance sheets, helped spark a rebound in bank stocks last week.
Morgan Stanley's top "long" picks have less credit sensitivity or better capital structures: Bank of New York [BK
Loading...
()
], JPMorgan Chase [JPM
Loading...
()
] and PNC Financial Group [PNC
Loading...
()
].
By contrast, investors should "underweight" banks with greater exposure to mortgages -- Wells Fargo [WFC
Loading...
()
] and Wachovia [WB
Loading...
()
]-- and those that operate in harder hit sections of the United States -- Fifth Third Bancorp [FITB
Loading...
()
] and KeyCorp [KEY
Loading...
()
].
Morgan Stanley also called for underweighting Citigroup [C
Loading...
()
] citing its exposure to risky assets relative to common equity.
- Where, what, how.
- CNBC's Jim Goldman asks: Has the sun begun to set on Twitter? Data suggests its best days are over.
- Everyone wanted a piece of Madoff's "Bullship"--the famous buoy sold for $7,500 at auction. You won't believe these prices.
- De Loach Vineyards is selling its pinot noir the old fashioned way, helping to cut energy and transportation costs.
- Why are the Chinese concerned about the progress of U.S. health care legislation?
- CNBC's Maria Bartiromo talks to rapper Snoop Dogg about brand identity in both business and music.













