Wednesday, 5 September 2007

Lehman cuts European Inv. Bank forecasts

As expected the downgrades continue for financial companies. This time it's the European Investment banks getting a touch up from Lehman Brothers, from Bloomberg:

Lehman Sees 'Material Hit' to Europe Investment Banks

By Charles Penty

Sept. 5 (Bloomberg) -- European investment banks will take a "material hit'' to earnings from writedowns associated with securities related to U.S. subprime loans, Lehman Brothers Holdings Inc. analysts said in a report.

The analysts are predicting post-tax writedowns of at least 15 percent to 25 percent of banks' "annualized level of first-half 2007 net profit,'' they said in a report. Disclosure by European investment banks about their subprime-related assets, collateralized debt obligations, leveraged lending obligations and asset-backed commercial-paper conduits "ranges from the bad to the non-existent,'' the analysts wrote.

Investment-banking divisions may see a 40 percent revenue decline in the second half, compared with the first six months of the year, as income from credit fixed-income trading drops and debt issuance and merger and acquisition activity slows, they said in the report.

The "material hit'' to profits won't "come close'' to threatening the solvency of the banks. "A final observation is that when the bad news is discounted and greater certainty emerges, the sector can be very quick to recover,'' they said.

They reduced their recommendation on Credit Suisse Group to "2-Equal Weight'' with a target price of 90 Swiss francs ($74.28) from "1-Overweight'' with a 123 Swiss-franc target. They also cut their recommendation on Deutsche Bank AG to "3-Underweight'' with a 94-euro ($127.7) target price from "1-Overweight'' with a 146- euro target.

The analysts kept their recommendation on UBS AG at "2-Equal Weight,'' reducing the price target to 70 Swiss francs from 91 Swiss francs.

The following is a table of the other changes to the ratings of European banking stocks following the recent credit-market rout.
Bank                     New rating          Old rating
Banco Espirito Santo SA 1-overweight 2-equalweight
Credit Agricole SA 1-overweight 2-equalweight
HBOS Plc 1-overweight 3-underweight
Banco Popolare Scrl 3-underweight 1-overweight
Banco Comercial
Portugues SA 3-underweight 2-equalweight
Bradford & Bingley Plc 3-underweight 1-overweight
Northern Rock Plc 3-underweight 2-equalweight
Societe Generale SA 3-underweight 2-equalweight
Unione di Banche
Italiane Scpa 3-underweight 1-overweight