Banking analyst Meredith Whitney lowered her profit estimates for investment banks Morgan Stanley (MS) and Goldman Sachs (GS). Shares of both banks fell following the announcement.
On Thursday, shares of Goldman fell $4.06, to $160.93. Shares of Morgan Stanley were down $1.22 to $29.12.
Both firms have come under increased scrutiny and criticism for their executive compensation practices. The Federal Reserve has embarked on a deeper review of pay at the biggest financial firms, and the Securities and Exchange Commission is trying to empower shareholders with more control over executive compensation.
“The current goal of the compensation vigilantes – more equity, less cash, long vesting and potential claw back of losses – is not a threat to most of the business franchises of the investment banks,” analyst Brad Hintz wrote in a note to clients.
The goal is to encourage compensation structures that align the pay of Wall Street workers with the long-term success of the company instead of rewarding short-term gains.
Executives at Morgan Stanley and Goldman have long held a substantial portion of their wealth in deferred common stock, Hintz said.
Goldman Sachs said last week it plans to pay top managers their 2009 bonuses in stock, rather than cash, as it seeks to deflect outrage over a near-record pay haul months after it repaid billions of dollars in taxpayer aid.
Whitney expects Goldman to earn $6 per share in the fourth quarter, down from her previous estimate of $6.38. She also lowered her full-year outlook on Goldman to $19.57 from $19.95 per share.
Whitney also made calls on 2010 and 2011. She expects Goldman to earn $19.65 per share next year, down from $21.73, and she cut her 2011 estimate to $20.60 per share from $24.04.
As for Morgan Stanley, Whitney says the bank will earn $2.60 next year, 3 cents lower than her previous forecast. She also lowered her 2011 forecast to $2.75 per share from $3.28.
Whitney has a “neutral” rating on both stocks.
Whitney’s calls are closely followed by the investment community, as she was one of the few analysts who correctly called the undercapitalization problems at Citigroup (C) in 2007. As an analyst at Oppenheimer at the time, she predicted that the bank would have to raise money, slash its dividend, and oust then-CEO Chuck Prince.
In February, she announced plans to leave Oppenheimer and has since started her own firm, Meredith Whitney Advisory Group.
