Goldman Sachs was downgraded to "hold" from "buy" by Deutsche Bank analyst Mike Mayo, who said the largest U.S. securities firm was not immune to capital market pressures, especially given its exposure to weaker European growth.
Goldman shares were about 5 percent on the New York Stock Exchange. They have lost more than 17 percent of their value since the start of the year.
Goldman earns a fourth of its revenue from the euro zone and UK, and the expected slowdown in the regions mean the firm's non-U.S. business is not as strong as before, Mayo said.
Deutsche's European economics team believes both regions are or will soon be in recession.
Goldman also has among the highest exposures to equities during a period of more significant equity market declines, including areas of expansion such as China, Mayo said.
The result is likely to be weaker-than-expected earnings, the analyst added.
Recent weakness in terms of equity underwriting, equities trading and private equity was hitting Goldman at its core strength, Mayo said.
He expects Goldman to "trade at a discount to its five-year average multiple given cyclical headwinds, the deteriorating credit environment, below average return on equity and newer regulatory uncertainty."
Oppenheimer & Co's influential analyst Meredith Whitney said as Goldman's revenue is more equity-linked than its broker peers, the fact that broad global equity market indices are all down double-digits will have a meaningful effect on the company's earnings.
Credit Suisse analyst Susan Katzke said market conditions remain challenging, more so this quarter, with capital markets volumes, volatility and asset prices reflecting incremental slowing in global GDP growth and growth prospects.
All three analysts cut their third-quarter and full-year profit forecast for Goldman.
The brokerage actions on Goldman and an announcement by JPMorgan Chase that it has lost $1.5 billion in the third quarter so far sent most of the financial stocks down on Tuesday, with the S&P 500 Financial Index falling 7.89 points to 291.68.
The MSCI global index, which has lost almost 15 percent year-to-date, was down 2.63 points at 341.84.
Third-Quarter, 2008 Estimates Cut
While the third quarter will not be terrible on a relative basis, it could still be one of Goldman's worst as a public company, and the favorable tailwinds the firm has experienced, compared with the industry, may no longer be as strong as before, Mayo wrote.
"Goldman is no longer as much in the right place at the right time, at least compared to the past year," he added.
Mayo cut his third-quarter profit estimate for the firm to $2.40 a share from $3.25 and his 2008 estimate to $14.60 a share from $16.25. He cut his price target on the stock to $192 from $209.
In June, Goldman had posted an 11 percent fall in second-quarter earnings as market turmoil hit trading and slowed investment banking, but the firm topped expectations by avoiding major losses on assets slammed by the credit crisis.
Whitney also cut her third-quarter earnings estimate for Goldman to $2.15 a share from $3.54 and 2008 estimate to $14.32 a share from $15.75.
The analyst said main drivers behind the estimate cuts were customer volumes, overall weak global equity markets, and weak advisory and underwriting revenues of the firm.
Credit Suisse's Katzke said Goldman's third quarter may be weaker than forecast, but added that she expects it to remain better than peer group performance, with the firm best positioned to profit in a recovery.
Katzke cut her third-quarter profit estimate for the firm to $2.15 a share from $3.75 and 2008 view to $14.50 a share from $18.50. She lowered her price target range on the stock to between $225 and $250 from a range of $250 to $275.