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Goldman Sachs, Morgan Stanley May Miss Estimates, Analyst Says

NEW YORK (TheStreet) -- Market expectations for second-quarter earnings from Goldman Sachs (GS) and Morgan Stanley (MS) may still be too high, according to Citigroup analyst Keith Horowitz.

A tough June month has "erased optimism" about a strong start to the second quarter, the analyst said in a note Tuesday. He lowered his second-quarter earnings estimate for Goldman Sachs by 40 cents to $2.70, well below the $2.83 consensus estimate reported by Thomson Reuters. The analyst expects Goldman to miss consensus, as its investing and lending portfolio is likely to have been hurt by the "recent correction in risk assets."

Morgan Stanley is also likely to miss the consensus earnings estimate of 45 cents per share by 3 cents, according to Horowitz, though this is largely because the buyout of the Morgan Stanley Smith Barney joint venture is being completed later than expected.

Horowitz's views appear to be shared by Atlantic Equities analyst Richard Staite, who earlier this week lowered his estimates for Goldman and Morgan Stanley to $2.70 per share and 42 cents per share respectively.

Estimates are also off for JPMorgan Chase (JPM), according to Horowitz, though in this case the bank could surprise on the upside. The analyst notes that consensus estimates are still to factor in management's guidance of mortgage loan loss reserves, which is expected to add 11 cents to earnings per share.

JPMorgan is likely to report earnings of $1.63 per share, according to Horowitz, while consensus expects a much lower $1.42 a share.

The analyst's estimates for Bank of America (BAC) and Lazard (LAZ) at 27 cents per share and 33 cents per share are modestly ahead of the market's expectations.

Analysts will probably continue to adjust their estimates in the next few days, ahead of the earnings season which kicks off next week.

Investors are likely to give banks a pass for a tough trading quarter, however, and may be more focused on the outlook for banks now that interest rates are heading higher.

JPMorgan and Bank of America may benefit the most, according to the Citigroup analyst. Both banks have noted previously that a 100 basis point increase in the long-end of the yield curve with flat short-term rates will add $900 million and $1.6 billion respectively to net interest income over the next 12 months.

Also if higher rates are signaling a strong economy ( and not just fears about the end of monetary stimulus by the Fed), this could lead to increased capital market activity, benefiting Goldman, Morgan Stanley and Lazard, according to Horowitz.

-- Written by Shanthi Bharatwaj New York.

>Contact by Email.

Stock quotes in this article: BAC, JPM, GS, MS, LAZ 
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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