Deutsche Bank's Mayo Slashes Estimates On Goldman Sachs and Morgan Stanley (GS, MS)
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Deutsche Bank analyst Mike Mayo lowered EPS estimates on Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS).
Mayo cut Q4 EPS estimates on Morgan Stanley from $0.40 to $0.05 and FY08 EPS estimates from $4.12 to $3.77. Mayo cited the likelihood of additional mark-to-market losses on risky assets on balance sheet. Mayo is raising the mark-to-market loss assumptions for Q4 from $2.5B to $4.8B.
Mayo cut Q4 EPS estimates on Goldman Sachs from a gain of $0.33 to a loss of $0.65 and FY08 EPS estimates from $9.95 to $8.97. Mayo cited the expectation of additional mark-to-market losses on principal investments and risky assets on balance sheet. The firm raised their assumption for losses on risky assets from $1.5B to $2.7B. Mayo noted Goldman's total principal investments exposure is $24B. Their estimate reflects a $2.2B loss in equity investments, $500 mil. loss from ICBC, and over $300 mil. loss in r/e holdings.
On Goldman, Mayo said elimination of executive compensation is a mitigating factor. Mayo noted that revenue is down 32% YTD in 2008 vs 2007, so he said assuming a commensurate decline in 2008 bonuses it would boost EPS by 46 cent. In 2007, seven of the top Goldman execs earned a combined $437 million.
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