Goldman and Morgan Stanley expected to suffer IPO earnings hit

Earnings expectations for Morgan Stanley and Goldman Sachs have been sharply pared back ahead of this week’s results, after a torrid run of stock market listings and a slowdown in M&A activity weighed on investment banking performance.

Analysts surveyed by Bloomberg have slashed their third-quarter earnings estimates for Goldman by more than 15 per cent in the past four weeks, while their forecasts for Morgan Stanley have come down by almost 10 per cent.

Goldman’s revision, which equates to a 25 per cent fall in year-on-year profits, partly reflected the loss the bank is likely to take on its stake in WeWork. The shared office provider had been targeting a $47 billion (€42.6 billion) valuation before its initial public offering imploded last month.

Valuation method

Goldman has not revealed the size of its stake in WeWork or the valuation method it uses, but Betsy Graseck, an analyst at Morgan Stanley, last week estimated the hit at $264 million. Rival Jefferies has already taken a $146 million writedown on its investment in the company.

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JPMorgan, Goldman, Citi and Wells Fargo – who together account for more than 40 per cent of assets in the US banking system – will all report third-quarter earnings on Tuesday, with Bank of America and Morgan Stanley coming later in the week.

Analysts are expecting a 10 per cent year-over-year boost to earnings at Citibank, and smaller improvements at JPMorgan and BofA.

– Copyright The Financial Times Limited 2019