BofA Cuts Outlook for Lehman, Goldman & M.Stanley

Bank of America forecast a second-quarter loss for Lehman Brothers Holdings and cut its earnings outlook for Morgan Stanley and Goldman Sachs, and said brokers may continue to underperform in the current challenged credit environment. “On top of weaker activity levels across many areas of investment banking this quarter, this quarter ‘basis risk’ or the divergence between cash and derivatives spreads is the issue driving substantive mark-downs for the I-banks versus spread widening,” Banc of America analyst Michael Hecht said in a research note to clients. Hecht said a slowing economic growth and large balance sheet exposure to residential and commercial mortgages suggested a lackluster, low-visibility environment for the large investment banks through 2008. The analyst said he expected Goldman to have the best relative second-quarter results, while he forecast Lehman to have the worst quarter.

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