Post by unlawflcombatnt on Aug 31, 2007 3:57:34 GMT -6
from Reuters:
Wall Street credit and loan losses may crush revenue
8/30/07
By Jonathan Stempel
"Mounting losses from exposure to mortgages and loans intended to fund buyouts will damage results at the biggest U.S. investment banks, and could lead to pressures resembling those in the 1998 liquidity crisis that brought Wall Street to its knees.
In studies released Wednesday, credit rating agencies Moody's Investors Service and Standard & Poor's said double-digit declines in revenue and pretax profits are possible as banks write down securities and loans that investors don't want to buy. Second-half net revenue from investment banking and trading could fall 47 percent from the first half, S&P said.
The projections come as Bear Stearns Cos Inc <BSC.N>, Goldman Sachs Group Inc <GS.N>, Lehman Brothers Holdings Inc <LEH.N> and Morgan Stanley <MS.N> this week wrap up their fiscal third quarters. Merrill Lynch & Co <MER.N>, the other traditional Wall Street investment bank, closes its quarter at the end of September, as do Citigroup Inc <C.N> and JPMorgan Chase & Co <JPM.N>....
Wall Street profits boomed in recent years. Rising stock prices, low interest rates and abundant capital fueled a record pace of mergers. Banks used more of their own money to trade and invest, including through hedge funds. And banks packaged an ever-widening array of loans and bonds, ranging from the safe to the financial equivalent of toxic waste, into securities.
The good times ended this summer as the downturn in U.S. subprime mortgages deepened and spilled into other markets. Demand dried up for many newfangled securities. Banks got stuck holding merger-related loans, often used to fund buyouts by private equity firms, because investors no longer wanted them....
DOUBLE-DIGIT REVENUE DECLINES
S&P's projected 47 percent net revenue decline, 16 percentage points more than the comparable 1998 drop, assumes a "harsh, but plausible" market scenario, and covers 11 banks -- the seven above, plus Barclays Plc <BARC.L>, Credit Suisse Group <CSGN.VX> Deutsche Bank AG <DBKGn.DE> and UBS AG<UBSN.VX>....
S&P said net revenue could fall 50 percent from the first half in debt underwriting and 75 percent in fixed-income trading. Pretax profit from investment banking and trading could fall 70 percent, with greater impact at banks exposed more to capital markets -- including Bear, Deutsche, Goldman and Lehman, S&P said.
Moody's, meanwhile, said the stalled pipeline of leveraged loans could cause third-quarter revenue to fall 13 percent to 19 percent from average levels in 2005 and 2006 at the five traditional Wall Street banks, with the biggest declines at Goldman and Lehman. Pretax profits could fall 22 percent to 30 percent, with the biggest drop at Morgan Stanley, it said....
Wall Street credit and loan losses may crush revenue
8/30/07
By Jonathan Stempel
"Mounting losses from exposure to mortgages and loans intended to fund buyouts will damage results at the biggest U.S. investment banks, and could lead to pressures resembling those in the 1998 liquidity crisis that brought Wall Street to its knees.
In studies released Wednesday, credit rating agencies Moody's Investors Service and Standard & Poor's said double-digit declines in revenue and pretax profits are possible as banks write down securities and loans that investors don't want to buy. Second-half net revenue from investment banking and trading could fall 47 percent from the first half, S&P said.
The projections come as Bear Stearns Cos Inc <BSC.N>, Goldman Sachs Group Inc <GS.N>, Lehman Brothers Holdings Inc <LEH.N> and Morgan Stanley <MS.N> this week wrap up their fiscal third quarters. Merrill Lynch & Co <MER.N>, the other traditional Wall Street investment bank, closes its quarter at the end of September, as do Citigroup Inc <C.N> and JPMorgan Chase & Co <JPM.N>....
Wall Street profits boomed in recent years. Rising stock prices, low interest rates and abundant capital fueled a record pace of mergers. Banks used more of their own money to trade and invest, including through hedge funds. And banks packaged an ever-widening array of loans and bonds, ranging from the safe to the financial equivalent of toxic waste, into securities.
The good times ended this summer as the downturn in U.S. subprime mortgages deepened and spilled into other markets. Demand dried up for many newfangled securities. Banks got stuck holding merger-related loans, often used to fund buyouts by private equity firms, because investors no longer wanted them....
DOUBLE-DIGIT REVENUE DECLINES
S&P's projected 47 percent net revenue decline, 16 percentage points more than the comparable 1998 drop, assumes a "harsh, but plausible" market scenario, and covers 11 banks -- the seven above, plus Barclays Plc <BARC.L>, Credit Suisse Group <CSGN.VX> Deutsche Bank AG <DBKGn.DE> and UBS AG<UBSN.VX>....
S&P said net revenue could fall 50 percent from the first half in debt underwriting and 75 percent in fixed-income trading. Pretax profit from investment banking and trading could fall 70 percent, with greater impact at banks exposed more to capital markets -- including Bear, Deutsche, Goldman and Lehman, S&P said.
Moody's, meanwhile, said the stalled pipeline of leveraged loans could cause third-quarter revenue to fall 13 percent to 19 percent from average levels in 2005 and 2006 at the five traditional Wall Street banks, with the biggest declines at Goldman and Lehman. Pretax profits could fall 22 percent to 30 percent, with the biggest drop at Morgan Stanley, it said....