By David Clarke
Aug. 30 (Bloomberg) -- Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and Bear Stearns Cos., four of the five largest securities firms, will earn less than expected through next year after a rout in U.S. subprime mortgages, according to Lehman Brothers Holdings Inc.
Lehman analyst Roger Freeman trimmed his share price estimates for Goldman to $214, for Morgan Stanley to $81, for Merrill to $106 and for Bear Stearns to $142, the company said in a note sent to clients today. He cut his third- and fourth- quarter and 2008 earnings estimates for the New York-based firms.
"Third-quarter earnings will be significantly impacted by the dislocation in the credit and asset-backed and mortgage markets,'' New York-based Freeman said in the note. He has an "equal-weight'' rating on Goldman and Morgan Stanley, the two biggest U.S. securities firms by market value, and an "overweight'' rating on Merrill and Bear Stearns.
Wall Street firms have posted three straight years of record earnings, fueled by fixed-income trading. Defaults on U.S. housing loans to subprime borrowers, those with patchy credit histories, have reached a 10-year high, driving down the value of bonds backed by mortgages and prompting a global slide in stocks.
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