Morgan Stanley Advises Clients to Sell the Rally in Financial Stocks
On Monday Morgan Stanley analysts advised clients to "sell the rally" in financial stocks, slashing forecasts for big bank earnings and warning that the current credit crunch is only just beginning.
In aggregate, Morgan Stanley reduced its estimates for 2008 large bank earnings by $17 billion, or 26 percent, and reduced 2009 forecasts by $13 billion, or 15 percent.
The analysts expect higher loan losses and expenses, offset by higher net interest income, though profits could fall further still if the Federal Reserve stops lowering interest rates.
"More capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline," analysts led by Betsy Graseck wrote in a report.
"We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91." A growing number of investors, and industry executives including Morgan Stanley Chief Executive John Mack, in recent weeks have predicted markets are closer to the end of the current mortgage and corporate credit crisis than to the beginning.
Published on April 29, 2008
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