Von Aldo

Retail Brokerage: Clients Pull Back, Bernstein

wall street collapseWell, there is trouble in paradise. According to Brad Hintz, a senior analyst at Bernstein Research and a respected industry expert, "lackluster trading volumes and difficult market conditions constrained trading revenues in the second quarter." He also wrote in a report issued today, "Wealth management revenues slowed in the quarter as investors pulled back from the equity markets in an early summer slowdown. Only investment banking continued to book strong numbers." He is reducing his earnings estimates for Morgan Stanley (NYSE: MS) but still has an outperform on the stock.

He also rates Goldman Sachs (NYSE: GS) a buy, since it and Morgan are trading at price-to-book valuations that are in the lowest 10 percent of their historic range," Hintz says. "At this point, we believe that the equity market is discounting an overly negative economic outlook and a changed regulatory regime that the market believes makes it impossible for these institutions to generate satisfactory returns on capital . . . ."

Hintz says the consumer confidence, slumping home prices and "stuck in neutral" equity markets in Q2 scared off the average retail investor, "which is negatively impacting trading revenues and product sales. This suggests that investor feear has not ended and that the long delayed recovery in retail activity will continue to drag out through 2011."

In May, Hintz notes that Schwab (SCHW) trading volume was down 9 percent from the prior month and TD Ameritrade (TDAM) trading fell by 6 percent. "This does not bode well for Morgan Stanley's retail revenues." MS eps expectation are $0.99 per share for 2011, by Hintz' reckoning --- a $0.54 per share drop from his prior estimates.

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