Investment Banks Bring Stock Market Lower
This morning’s stock market news is focused on the issues surrounding investment banks. Morgan Stanley is reporting that its quarterly profit is of 60 percent, and this is having an effect. Even though this is in line with “expectations” in the current environment, the dramatic difference in profitability is taking its toll on Morgan Stanley shares on the stock market.
And that is as it should be.
Too often in the past few weeks, we have seen similar stock market news treated as something promising because it is in line with “expectations.” By that reasoning, you could simply always under-promise, and then when you perform abysmally, you could point to your “expectations” and receive a stock market boost. The fact that the same hype isn’t being parroted in the Morgan Stanley case is one of the more encouraging things about this story.
Other investment banks are seeing trouble
Lehman Brothers continues to struggle after its earlier warnings, but it is managing to stave off a collapse reminiscent of Bear Stearns. Indeed, the hope is that Lehman Brothers will ultimately recover.
Fifth Third is also seeing some problems. It is going to sell $1 billion in stock in order to raise capital, and it will slash its dividend. The idea is to try and build up a reserve so that when the third quarter earnings time comes around, there is something there to absorb all of the losses.
Indeed, investment banks are rushing to raise funds in order to absorb the predicted losses that are expected as a result of the ongoing fallout from the credit market crash.
Goldman Sachs remains practically the only one of the major investment banks not to be totally burned by the events of the credit market crash. Even though earnings are off 10 percent, that’s a darn sight better than anyone else. Why is Goldman Sachs doing so well? Mainly because the company had the foresight not to get neck deep in risky mortgage backed securities. Yes, the company had losses. But they weren’t as large as everyone else’s in the investment bank club.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.
Tags: stock market, stock market news, investing blog, Goldman Sachs,
investment banks, investments, credit market crash
