By Sebastian Boyd
Aug. 28 (Bloomberg) -- Lehman Brothers Holdings Inc., Bear Stearns Cos. and Citigroup Inc. were downgraded to "neutral'' from "buy'' by Merrill Lynch & Co. analyst Guy Moszkowski, because of probable losses on mortgage bonds and leveraged loans, as well as a slowdown in investment banking.
New York-based Lehman and Bear Stearns, the fourth- and fifth-biggest U.S. securities firms, will probably lose out because of their dependence on debt markets, and Citigroup may be pinched by loans and leveraged finance commitments, Moszkowski wrote in a note to investors today. He cut his profit estimates for all three companies and JPMorgan Chase & Co.
Rising foreclosures on U.S. subprime mortgages have rippled through debt markets, cutting revenue from underwriting bonds and debt-financed buyouts. Lehman fell 26 percent and Bear Stearns was down 31 percent this year in New York trading through yesterday as investors lost confidence in the asset-backed securities that fueled three years of record Wall Street profit.
"There has been no good place to hide during the month of August, which must surely go on record as one of the industry's most hair-raising ever,'' wrote New York-based Moszkowski, the top-rated U.S. brokerage analyst in Institutional Investor magazine's survey of money managers. Next year's "forecasts appear increasingly unrealistic for most,'' he wrote.
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