Goldman Sachs said it expects additional writedowns of about $1 billion to $12 billion each for several major U.S. brokers in the first quarter, with Citigroup estimated to record the highest amount of about $12 billion.
Goldman expects these writedowns to be spread across residential mortgage-backed securities, commercial mortgage-backed securities and leveraged loans.
The brokerage lowered its first-quarter and 2008 earnings estimates for its large-cap universe which includes Bear Stearns, Lehman Brothers, Morgan Stanley, JPMorgan Chase and Merrill Lynch to reflect continued challenges in the credit markets.
Goldman reduced its first-quarter earnings outlook on Citigroup to 15 cents a share from 40 cents a share, adding that the company has been one of the least aggressive in terms of its write-down of assets.
Goldman also cut its first-quarter profit view by 74 percent to 55 cents a share on Bear Stearns, by 73 percent to 45 cents a share on Lehman Brothers, by 24 percent to $1.25 per share on Morgan Stanley and by 27 percent to 70 cents per share on JP Morgan.
Assuming about $4.0 billion of additional writedowns at Merrill Lynch, Goldman slashed its first-quarter earnings view on the company to 25 cents a share from 90 cents a share.
The combination of a slowing global economy and a continued correction in financial asset values will dampen 2008 earnings and returns for the investment banks, Goldman Sachs analyst William Tanona said in a note to clients.
We do not rate any of our large-cap investment banks a Buy at this time and we continue to rate Citigroup a Sell, Tanona added. (Reporting by Nivedita Gupta, Sweta Singh in Bangalore; Editing by Gopakumar Warrier)