Wall Street analysts appear to be increasingly bearish on financials. On Thursday Fox-Pitt Kelton analyst David Trone cut his estimates on Morgan Stanley to reflect larger write-downs which could lie ahead.
Trone now rates the investment banks "In Line" with a $51 price target and says Morgan should cut its dividend by 50% to bolster its capital position. He also expects the investment bank to earn 73 cents a share, compared with his earlier estimate of 79 cents.
In a note to clients he writes “Morgan Stanley will write down $1.2 billion in fixed income, currencies and commodities (FICC) in the third quarter.” Earlier he was expecting FICC-related net write-downs to be $800 million.
“We’re continuing to have asset sales in the market and they’re coming at fire sale prices,” Trone tells the Fast Money traders, “and it’s creating net write-downs and that’s the story. That’s why we cut our estimates.”
If you’re looking for a trade Trone thinks the financials are “pretty far away from having catalysts that will cause them to break out.”
If you’re looking to get short, Trone says “in the brokers I think Goldman is priced too high," he adds. "I think their relative valuations are too high but in terms of write-downs I think Merrill Lynch has the most exposure.”