Maybe the financials have bottomed and maybe they haven’t, but either way it looks like more write-downs lie ahead.
Foxx-Pitt Kelton analyst David Trone wrote in a note to clients that he expects Goldman, Lehman and Morgan Stanely together to write-down another $6.1 billion on their "problem assets" across leveraged loans and commercial and residential mortgages.
According to Trone, they face new challenges due to sharp declines in international markets, seasonal customer weakness and settlements with state regulators.
"As a practical matter, we see short-duration mini-rallies coming and going, but we doubt that a definitive, sustained upside breakout is looming," Trone concludes.
What’s the trade, here?
I think at a certain point Goldman Sachs will get oversold, says Joe Terranova.
I’m long Goldman, adds Karen Finerman. But for me it’s not a one-quarter story.
During his interview on Fast Money Trone presented a few interesting scenarios concerning the future of Lehman.
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"Lehman has at least two distinct options in-front of them," Trone says. "One option is to create a new structure for their commercial mortgages. The second option is that if the stock gets weak enough the company could take itself private around $13 / share."
But Lehman management can’t afford to buyout the company and they can’t raise debt. "So they’d had to sell Neuberger Berman to finance the tender offer. And they would come up short about $3 billion. So they’d have to get a private equity firm to invest."
In case you're wondering, the traders find that scenario tough to swallow.