Goldman Cuts Morgan Stanley

A weak trading environment is likely to hurt earnings, the report says.
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NEW YORK (

TheStreet

) --

Goldman Sachs

(GS) - Get Report

has lowered its third-quarter earnings estimates for rival

Morgan Stanley

(MS) - Get Report

arguing weak trading activity is likely to hurt profits.

The report by analyst Richard Ramsden cites an earnings miss by

Jefferies & Co.

(JEF) - Get Report

earlier in the month as evidence of the weak trading environment. Also this month,

Deutsche Bank

(DB) - Get Report

analyst Michael Carrier cut his estimates for Morgan Stanley and Goldman, citing similar factors.

Ramsden stated in his report that "the weakness is somewhat well known," but argues a still-unresolved question is the impact of new global guidelines, known as Basel 3, that increase the minimum amount of capital banks are expected to hold to guard against potential losses. Citing figures provided by

JPMorgan Chase

(JPM) - Get Report

about the impact on its business, Ramsden sees a potential 20% increase in so-called "risk-weighted assets."

Risk-weighted assets (RWA) refers to a formula for determining how much of a capital cushion banks need based on the amount of risk they are perceived to be taking. Ramsden writes that a 20% increase in RWA would amount to $5 billion and have a "meaningful impact" on Morgan Stanley's return on equity.

Morgan Stanley shares were lower by 0.92% in early trading Wednesday, though slightly better than shares of Goldman,

Bank of America

(BAC) - Get Report

,

Wells Fargo

(WFC) - Get Report

and

JPMorgan Chase

(JPM) - Get Report

. Among the largest U.S. banks, only

Citigroup

(C) - Get Report

was higher in early trading.

--

Written by Dan Freed in New York

.

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