Can Goldman Sachs & Morgan Stanley Earnings Save Financials? (GS, MS)

By Douglas A. McIntyre Published Sep 15, 2:39PM EDT

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This week seems to be unprecedented for the financial powerhouses and bulge bracket brokerage firms. While Merrill Lynch had to throw in the towel and become a Bank of America subsidiary, Lehman Brothers is essentially chopped liver. Now, we have two crucial earnings reports coming from Goldman Sachs Group (NYSE: GS) on Tuesday and Morgan Stanley (NYSE: MS) on Wednesday.

Be advised, those numbers may be lower and today’s turmoil makesall of these estimates questionable at best. To prove the point,Goldman Sachs is down 15% at $131.00 and Morgan Stanley has fallenalmost 15% at $31.81. That is a 52-week low for GoldmanSachs. Morgan Stanley’s stock is still a few percentage points above its 52-weeklow. Estimates have already come down substantially for thequarter, so this is anyone’s guess. You might even expect a new type of non-GAAP earnings in the financial services sector: "EWOEMD"…..ex-write-offs and ex-mark-downs.

It looks like analysts are looking for about a 70%earnings drop from Goldman Sachs with earnings of $1.73 and $6.23 billion in revenue. Brokerage firms do not giveguidance and are always too dependent upon internalfactors going their way. For next quarter, analysts are looking for earnings of $4.09 onrevenue of $8.31 billion.

Morgan Stanley is expected to post earnings of $0.77 on $6.28 billion inrevenue. Again, don’t expect guidance. Analysts expect earnings of$1.10 and $7.42 billion in revenue next quarter.

Now, there are reports that one or both of these firms are being asked by the government to lead a credit lending facility to keep the insurance sector and AIG afloat. While it may save AIG, it might hurt their credit quality.

There are some real issues here regardless of how well these firmssay they are doing or regardless of how poor they see the environment. These firms do well in some quarters and not in others. There isalso not believed to be a new undisclosed meltdown that has occurredwhere Goldman Sachs was able to profit in the billions as it did during late 2007. The other issue isthat despite these firms falling in share prices with the sector, theyare better run and haven’t stayed as grossly leveraged as others did. Even if these two say all iswell, it might not be worth a can of beans to the banking, brokerage,insurance, and other financial firms in trouble.

Jon C. Ogg
September 15, 2008

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.