After hours Tuesday Goldman Sachs slashed its earnings outlooks for some of its major rivals, citing mounting write-downs on mortgages, a slowdown in overall activity, and legal expenses.
Analysts led by William Tanona reduced third-quarter and full-year forecasts for Citigroup JPMorgan Chase, Morgan Stanley and Merrill Lynch .
However the downgrade that really got the attention of the Fast Money traders was that of Lehman Brothers.
WHAT'S WRONG WITH LEHMAN?
Lehman could lose $9.65 per share for the year, versus a prior forecast for a loss of $2.10 per share, the Goldman analysts said. Lehman may reduce its mortgage exposure in the third quarter by 20 percent, or $15 billion, which could lead to a $2.5 billion to $3.5 billion write-down, the analysts said. Its share-price target was cut to $22 from $40.
The market is running scared of Lehman, says Pete Najarian. It bodes poorly for the open on Wednesday.
But they’re not running scared enough, adds Jeff Macke. I’m hoping that Goldman’s latest downgrade causes a panic in the Street so we can get over this idea that banks are cheap.
"Goldman is making a guess like every other analyst is making a guess," says Sanford C. Bernstein analyst Brad Hintz on Fast Money. "The issue with Lehman is that they have $60 billion dollars of mortgage exposure and about half of that is in commercial mortgages."