Trader Talk

Investment Bank Estimates Lowered Too Late?

Merrill Lynch

It's finally happening: analysts are lowering estimates on investment banks, just a few days before the quarter closes for many of them. Merrill Lynch's Guy Moszkowski downgrades Bear Stearns, Lehman Bros. because of their greater dependence on debt markets; they note that Merrill and Morgan Stanley are more diversified. They also downgrade Citi and lower estimates for JP Morgan Chase, due to the expected impact on the banks' Investment Banking units from bridge-financing commitments.

Richter's Tickers

This call is a little late; I noted yesterday that Goldman over the weekend made similar comments, noting that "Bear Stearns will see the greatest reduction in earnings this quarter given its high concentration in mortgages." Indeed, Goldman notes that August in general has been ugly for brokers, with investment banking and fixed income both weak.

I also noted yesterday that the Shanghai stock market, as well as Hong Kong's Hang Seng Index, hit another new high...from August 16 to now, the Dow is up 3.7% and Shanghai another 10.6%. Don't they know there's a subprime crisis going on? Many Chinese stocks were up nearly double digits...Aluminum Corp. of China was up 25%!

What gives? Donald Straszheim, who writes often on the Chinese economy, had this to say this morning by way of explanation:

"China's equity markets are dominated by state-owned enterprises, with the emphasis on state-owned. China's economy is going fine. China's domestic investors are making a seeming fortune. Most Chinese investors to this date have never heard the phrases "subprime loans" or "credit crunch." Few are aware of the recent US or Asian market losses. They don't know about concepts like P/E, book value or return on equity. Their saving and investing choices are either 3.3% in 1-year CDs (taxable) or the +409% in the Shanghai Composite since the July 11, 2005 bottom (tax free). Bubble is another term with which they are not familiar. Greed, not fear, is in charge..."

Warren Buffett added more shares of Burlington Northern to his portfolio...another 10.1 million shares, bringing his ownership share to 14.8%, from 11.9%.

The Times of London is reporting that State Street has $22 billion in exposure to asset-backed commercial paper conduits.

Questions?  Comments?