Financial Winners & Losers: Goldman

Financial stocks are beginning the week deep in the red after Goldman Sachs led a parade of bearish analyst forecasts for the sector.

Goldman said it erred in upgrading financials to neutral last month, and returned its outlook to underweight. The group of analysts led by David Kostin cited four reasons why the financial sector would lag and why a turnaround was not imminent: Credit deterioration will not peak until 2009, capital raising is harder, earnings estimates are all over the place and a flat yield curve will keep performance down.

All of the investment banks traded down as positive news is missing in action. Merrill Lynch(MER Quote) plunged 4% to $34.51, Lehman Brothers (LEH Quote) fell 3.9% to $23.25 and Morgan Stanley (MS Quote) sank 3.1% to $37.50.

Meanwhile, shares of Goldman Sachs(GS Quote) traded down 2.9% after The Financial Times reported the firm was cutting 10% of its investment banking staff. Shares were recently down $5.39 to $178.38.

The Wall Street Journal also reported Citigroup(C Quote) was readying pink slips for 10% of its work force, as the banking giant attempts to recover from bad mortgage investments. Shares of Citi were giving back 3.4% to $18.64.

A Bank of America analyst said he expects more markdowns on troubled loans as well as a weak sales number in the second quarter at Merrill and UBS(UBS Quote). Michael Hecht now expects a loss of $1.00 per share at Merrill, vs. his earlier view of a 23-cent-a-share profit, and sees a loss of $1.70 a share at UBS, compared to his earlier expectation of a profit of 31 cents a share. He cited the Swiss bank's exposure to subprime as the main reason for concern, and the stock hit a new 12-month low of $20.82, a loss of 4.9%. Shares of UBS are off 63% over the past year as investors sold the stock down in heavy trading on Monday.