Brokers May Write Down More Asssets

123jump.com Staff
22 Aug, 2008
New York City

U.S. brokers may be forced to write down more mortgage related assets in the latest quarterly results. Three largest brokerages collectively have $3 trillion of assets on their balance sheets. Even 3% decline in asset values can wipe out the entire equity base of these companies. Citigrop estimates Goldman Sachs, Morgan Stanley and Lehman Brothers may write down $6.4 billion of mortgage related assets.

[R]5:00AM New York, 7:00PM Tokyo – U.S. brokers may be forced to write down more mortgage related assets in the latest quarterly results. Three largest brokerages collectively have $3 trillion of assets on their balance sheets. Even 3% decline can wipe out the entire equity base of these companies.[/R]

Stocks in Japan fell marginally after Citigroup estimated that three U.S. investment banks, Lehman Brothers, Goldman Sachs and Morgan Stanley may write down as much as $6.4 billion total in the third quarter as housing market continues to deteriorate. However, rising commodities related stocks pared losses in benchmark indexes.

Market Sentiment

In Tokyo trading Nikkei 225 fell 0.68% or 86.17 to 12,666.04 in Friday’s session and dropped 2.7% for the week. The broader Topix Index shed 0.7% or 8.11 to 1,216.42 and declined 2.5% during the week.

In the first section of the Tokyo Stock Exchange 14 billion shares valued at 1.5 trillion yen were traded and in the second section 268 million shares worth 4.8 billion yen changed hands.

Of the Nikkei 225 stocks, 66 rose, 148 declined and 11 were unchanged. Shionogi & Co. led advancers in the index shares with a rise of 5.18% followed by Japan Steel Work increasing 5.04%.

Citigroup Cut Outlook on U.S. Investment Banks

Reuters News reported on its Web site today that Lehman Brothers Holdings Inc, Goldman Sachs Group Inc and Morgan Stanley may write downs more assets in mortgage backed portfolios.

Citigroup forecasts that Lehman might take new asset-related write downs of $2.9 billion, while Goldman Sachs and Morgan Stanley may write downs $1.8 billion and $1.7 billion assets correspondingly.

According to the report, there was a lower probability that Lehman will sell its Neuberger Berman business or raise capital in the near term.

Citigroup noted, “Even under the potentially more stringent rating- agency guidelines related to the amount of preferred securities in the capital mix, we anticipate that Lehman can absorb over $3 billion of after-tax losses without adding more common equity.”

Goldman’s third quarter earnings estimate was cut from $4.50 per share to $2.50 per share, while earnings estimate at Morgan Stanley was slashed to $.075 per share from $0.76 per share.

Gainers & Losers

Shionogi & Co. led advancers in the Nikkei 225 index shares with a rise of 5.18% followed by increases in Japan Steel Work of 5.04%, in Mitsui Sumitomo Insurance Group of 4.43%, in Mitsubishi Corp. of 3.21%, and Nichirei Corp. of 2.75%.

Commodity stocks rose after oil prices gained 5% to $121.18 per barrel. Metal prices also rose as well as investors sought to hedge their positions against inflation.

Inpex spiked 2.15% and Nippon Light Metal soared 1.28%.

Meidensha Corp. led decliners in the Nikkei 225 index shares with a fall of 5.70% followed by losses in Denso Corp. of 4.72%, in Kubota Corp of 4.40%, in Nitto Boseki Co. of 4.21% and Mitsui Chemicals of 4.14%.

Financial stocks fell on the worries that banks may write down more assets. Mizuho Financial Group plunged 4.13% and Mitsubishi UFJ Financial Group slid 2.10%.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 86.17 or 0.68% to 12,666.04, ASX 200 index in Australia increased 56.20 or 1.15% to close 4,931.40. The KL Composite index in Malaysia increased 14.17 or 1.32% closed to 1,085.60. Hong Kong was closed today.

The Kospi Index in South Korea decreased 15.68 or 1.04% to close at 1,496.91, SET index in Thailand closed higher 5.40 or 0.80% to 681.93 and JSE Index in Indonesia increased 32.24 or 1.54% to 2,120.49. The Sensex index in India increased 157.76 or 1.11% closed to 14,401.49.