Wachovia Raises Q2 EPS Est On BofA (BAC) and Goldman (GS), Lowers JP Morgan (JPM) and Morgan Stanley (MS)

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Earlier, Wachovia issued a Q2 preview for U.S. banks and adjusted EPS estimates for Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS) higher, while lowering estimates on JP Morgan (NYSE: JPM) and Morgan Stanley (NYSE: MS).

Wachovia is telling investors to expect a messy quarter. The firm said, "We expect a combination of sizeable one-time charges will be taken by the banks, in most cases offsetting what we expect should be solid results in the trading pits, underwriting activities, and mortgage strength."

Bank of America (NYSE: BAC):
The firm raised Q2 EPS estimates to $0.07 from $0.04, saying, "While credit costs are expected to remain elevated (as BAC continues to build reserves), we have now included the effect of $2.7B in DVA charges ($0.32) and approximately $680MM in FDIC charges ($0.06)." Wachovia also raised their valuation range on BAC to $14-16 from the prior range of $12-14.

Goldman Sachs (NYSE: GS):
The firm raised Q2 EPS estimates to $3.44 from $1.99, citing healthy investment banking and trading results. The firm incorporated $425MM ($0.78) in after-tax costs associated with TARP repayment and pre-tax DVA costs totaling approximately $600MM ($0.29). Wachovia also raised their valuation range on GS to $169-179 from the prior range of $138-141.

JP Morgan (NYSE: JPM):
The firm lowered Q2 EPS estimates to $0.27 from $0.37, citing strong investment banking and trading results which we believe will be offset by: 1) $1.1B ($0.29) in after-tax costs related to TARP repayment, 2) $725MM in FDIC special assessment charges ($0.11). Wachovia raised their valuation range on JPM to $35-$39 from the prior range of $31-34.

Morgan Stanley (NYSE: MS):
The firmed lowered Q2 EPS estimates to a loss of $0.42 from a profit of $0.37. The firm cited, "1) TARP repayment costs of about $900MM ($0.78), and 2) DVA costs totaling approximately $1.75B pre-tax ($0.24). We have also included a modest revenue benefit (~$100MM) from the Smith Barney JV addition at the beginning of June." Wachovia raised their valuation range on MS to $30-$32 from the prior range of $22-25.

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