Credit storm passing for Wall Street firms

Marketwatch ^ | 9/21/2007 | Alastair Barr

[oblomov]

SAN FRANCISCO (MarketWatch) -- The credit storm is passing for Wall Street's biggest firms, but once lucrative, and now ravaged, mortgage and structured-product markets may never be rebuilt entirely, analysts said on Friday.

Goldman Sachs (GS) , Morgan Stanley (MS) , Lehman Brothers (LEH) and Bear Stearns (BSC) cut the value of leveraged loan commitments and mortgage exposures by a net $3.82 billion in the third quarter, according to Keefe, Bruyette & Woods. (See table). Hedge fund and in-house trading losses also knocked $200 million and $480 million off the results of Bear and Morgan.

However, all the firms reported profits and Goldman's results smashed analyst estimates as the bank benefited from short positions, or bets against, the mortgage market. Executives at the firms delivered a similar message: The worst of the credit crisis is over. That helped stock markets recover this week and pushed shares of most investment banks higher. The Amex Securities Broker/Dealer index (XBD) is up more than 3% this week. Goldman shares have jumped more than 10% and Lehman is up 6%.

But the longer-term effect of this summer's credit crisis could be less rosy. Reflecting that uncertainty, shares of Morgan Stanley are down more than 1% this week, while Bear Stearns stock has gained less than 2%. "The storm of credit is passing, but brokerage firms will still have to deal with the aftermath," said Brad Hintz, an analyst at Bernstein Research and a former chief financial officer at Lehman. "That will be a smaller mortgage market and a smaller structured-product business."

Trouble in the mortgage market and related structured products triggered the credit crisis earlier this year and these will probably be the areas that will feel the most long-term effects, Hintz and other analysts said.

[oblomov]

Goldman Sachs- stock, or publicly traded hedge fund? Whatever the case, it is the premier trading vehicle of the moment.

[Freedom_Is_Not_Free]

I’m confused. Does this mean that ALL of the toxic paper has been found and brought to light, so everybody knows exactly which CDOs are poison and which are safe, and that there are no timebombs left working their way through the system with all of the new resets that take place the next 12 months.

Is that what they are saying? That tranparency is complete and they know exactly which paper is toxic and which is not?