Deutsche Slashes Q3 Estimates on Goldman Sachs (GS)

Deutsche Bank lowers its Q3 EPS estimates on Goldman Sachs (NYSE: GS) from $2.40 to $1.60, versus the Street consensus of $1.87. The firm maintains its Hold rating and $192 price target on Goldman.

The firm cites weak results at Lehman (NYSE: LEH), a tougher quarter-end, negative marks on principal investments (estimated at $500 million), reduced trading levels leading to weaker than expected capital markets, less hedge fund activity and weaker non-U.S. stock markets.

Deutsche sees several risks that could cause issues at Goldman:

• Global equity markets were down about 10-20% in 3Q08, which impact mark-to-market valuations of principal investments, trading inventory, and asset management
  
• customer flow declined substantially in July and August, reducing trading and commission revenue and
  
• corporate activity appears to have been down 25-30%, reducing both origination and merger.

The firm also points out that at the end of Q2, Goldman had about $17 billion worth of exposure to the commercial real estate market, $5 billion in Alt-A, $2 billion in subprime and $22 billion in leveraged loans. Deutsche lowered its estimates for total equity trading and commissions from down 37% to down 40%, FICC from 25% to down 37%, and investment banking from down 39% to down 40%. The firm also expects asset management and securities services to decline by 10% sequentially. Deutsche said it is modeling about $2 billion in mark-to-market losses on Goldman's remaining exposure.

Furthermore, Deutsche is concerned with Goldman's overseas exposure, as these markets make up about half of Goldman's revs.

The Goldman Sachs Group, Inc. provides a range of investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide.

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