Goldman Sachs and Morgan Stanley Lower Earnings Estimates

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Jefferies analyst Daniel Fannon has revised his earnings estimates for Goldman Sachs Group Inc. and Morgan Stanley ahead of their second-quarter updates. Fannon cites a decline in investment banking and sales and trading as the reason for the adjustment.

Goldman Sachs

Fannon has lowered his second-quarter profit view for Goldman Sachs by 56% to $3.82 per share, which is below the consensus estimate of $4.73 per share. Lower deal-making volume is primarily responsible for the decline in estimates. However, Fannon notes that equity capital markets have provided some modest support for the bank.

Additionally, Goldman Sachs is expected to face approximately $1 billion in commercial real estate and goodwill impairments. There are also reports suggesting that the bank is exploring strategic alternatives for its consumer banking units, including a potential sale of its credit card alliance with Apple Inc. Fannon believes the bank may report a goodwill impairment of around $500 million related to its GreenSky consumer lending business amid ongoing sales efforts for the unit.

Morgan Stanley

Fannon has reduced his second-quarter profit view on Morgan Stanley by 32% to $1.17 per share, slightly below the consensus estimate of $1.22 per share. While lower deal-making volume is again a contributing factor, the bank is also expected to incur severance costs.

Stock Performance

In premarket trades, shares of Goldman Sachs are up fractionally, while Morgan Stanley is seeing a 0.3% gain in value.

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