Goldman Sachs Cuts Estimates/Price Targets on Morgan Stanley (MS) and Jefferies (JEF)

Goldman Sachs sharply cut estimates on Morgan Stanley (NYSE: MS) and Jefferies (NYSE: JEF) citing an "even more challenging trading, banking, and inventory pricing environment than we expected a few weeks ago."

The firm said while trading velocity has been robust, a large part of that flow has been in low-touch/lower-margin electronic/algo strategies. Also, a sharp flattening of the yield curve creates a tough trading market in FICC, and will pressure NIM in all trading/asset sensitive businesses.

The firm cut its price target on Morgan Stanley from $21 to $20 and on Jefferies from $16 to $15.

The firm cut FY11 EPS on Morgan Stanley from $1.10 to $1.00 and FY12 from $2.55 to $2.30. On Jefferies, the firm cut FY11 EPS from $1.39 to $1.25 and FY12 goes from $1.60 to $1.45.

Goldman is maintained a Neutral on Morgan Stanley and a Sell on Jefferies.

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