Nomura Securities on Brokers & Asset Managers: Cutting Estimates: Sluggish 4Q and Beyond

Nomura Securities on Brokers & Asset Managers: Cutting Estimates: Sluggish 4Q and Beyond

Nomura analyst, Glenn Schorr, said, "Despite a rise in equity prices, trading and investment banking activity has remained sluggish so far in 4Q11. With the usually slower holiday season coming, we see little sign that activity will pick up as we close out 2011. We also expect 2012 activity levels to be impacted by the expected slowdown in Europe and remaining regulatory uncertainty. Given this backdrop, we adjusted our 4Q11 and full year estimates and also adjusted price targets on several of the capital market stocks we cover."

"The difficult trading backdrop, soft investment banking trends, limited expense flexibility (comp flexibility may not be that high), and some onetime items for Citi and MS fuel our lower 4Q11 estimates for the brokers and universal banks. We have also reduced our 2012 and 2013 estimates to reflect a drag on economic activity in Europe and continued regulatory uncertainty, which will likely weigh on activity levels and keep NIMs under pressure. As a result, we lowered our price targets for Bank of America (NYSE: BAC), Citi (NYSE: C), Goldman Sachs (NYSE: GS), and Morgan Stanley (NYSE: MS). Among the stocks, we prefer C, JPMorgan (NYSE: JPM) and GS."

"Asset Managers – Still our favorite sector: For the asset managers, we have trimmed estimates for Franklin (NYSE: BEN), Legg Mason (NYSE: LM), and T. Rowe Price (Nasdaq: TROW) on tempered equity returns (off a strong October), higher net outflows (for BEN and LM), and a less favorable mix shift (driven by lower equity prices and outflows). As a result, we lowered our price targets on BEN, LM, and TROW based on our estimate revisions and/or lower multiple. We continue to prefer the asset managers over the other subgroups, as asset levels have rebounded a bit, cash flow generation remains strong, valuations are attractive (~12.5x 2012E) and they are least exposed to regulatory changes. Invesco (NYSE: IVZ) is our top pick."

"Trust Banks – Still Stuck in Neutral: We have reduced our 4Q11 and out-year estimates for Bank of NY (NYSE: BK), State Street (NYSE: STT) and Northern Trust (Nasdaq: NTRS) based on revised NIM, and AUM/AUC growth assumptions. As a result, we lowered our price targets for BK and NTRS. We remain Neutral on the group, but STT (rated Neutral) remains our top pick."

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