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Wall Street’s Inferiority Complex

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.”

The good news is that Trone believes the investment banks can get back to the kind of profitability they experienced about 18 months ago, provided they can avoid government controls. “The dollars in the world have to go somewhere and there will be a boom that will follow this bust.”
















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Trader disclosure: On Aug 14, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (COST), (DIS), (MSFT), (WMT), (UUP); Adami Owns (C), (GS), (INTC), (BTU), (AGU), (MSFT), (NUE); Najarian Owns (AAPL), (NOK), (TSO), (XTO); Najarian Owns (WPI) Calls, (ONXX) Calls, (MRVL) Calls, (CSCO) Calls; Najarian Owns (BGG) Puts; Finerman Owns (GS); Finerman's Firm And Finerman Own (C) Leaps; Finerman's Firm Owns (JCP), (MSFT), (NOK), (SUN), (TSO), (VLO), (MO); Finerman's Firm Is Short (IYR), (IWM), (SPY), (IJR), (XLF), (BBT), (COF); Finerman's Firm Owns (ANF) Call Spreads; Finerman's Firm Is Short British Pound

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