In the report, she wrote "we are cutting our 2Q08, FY2008, and FY2009 estimates on the brokers by an average of 41%, 48% and 20% respectively, based on our outlook on the capital markets as well as sizable estimated revenue reversals from FASB 159."
As a result, Goldman went from $4.09 to $3.48 for Q2. Full year went from $17.35 to $14.65. Lehman Brothers went from $1.10 to $0.72 for Q2. Full year went from $4.43 to $3.45. Morgan Stanley went from $1.44 to 0.94 for Q2. Full year went from $5.85 to $5.00. Merrill Lynch went from $1.00 to $0.20 for Q2. Full year went from $1.15 to a loss of $0.45.
What is more interesting than numbers is actually her TV comment on Citi, with some of them listed below:
Citi is passing the point of fixing.
Citi has no earning power to support their dividend.
Citi is the most overvalued bank at Wall St.
Not even Steven Hawking can pull Citi out of this black hole.
The cuurent plan is almost identical to the one given by former CEO Chuck Prince about a year and a half ago.
Citi is 10 years behind to upgrade their infrastructure.
I agree with her on all. Like Whitney, I have been Citi bashing for a while. In "My Ten Predictions for 2008" article written last Dec, I picked Citi on purpose to reflect my bearish view on the whole banking sector, with target price in teens, since I also felt at that time that Citi was a safer bet than others due to its overvaluation. Of course, even I sensed risk of BSC's highly leveraged position comparing to their small equity, I didn't expect BSC would be totally out of business. To me, BSC is more like a hedge fund, hard to predict, but Citi is a global bank. Coincidentally, Whitney's latest target for Citi is also $16 as I remember if she haven't lowered it yet.
From the very beginning, my gut feeling has also been that Citi's board picked up the wrong guy when they chose Vikram Pandit. A quant guy good at selling structured products at Morgan Stanley's institutional sales doesn't provide the right fit for such a difficult turnaround job for a universal bank with everything under one roof. Like Lloyd Benson said to Dan Quayle "You are not JFK", I think Citi's board probably starts to feel now that he is not Damon James. Damon James is totally a different kind of quant guy, with heavy number crunching on business side. Pandit will be given a little more time and by end of next year, most likely he will be gone if not sooner. Then whoever the new CEO is will have to trash the universal model and break up the Company into pieces.
Regarding the whole investment banking sector, is the worst over as everyone now thinks? Not according to Whitney. "The credit outlooks and the loss assumptions for banks across the board are way too low," Whitney said. "The outlook for earnings across the board is going to be much worse than people expect."
By Thomas Tan, CFA : See his profile at Vestopia