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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (93503)	10/31/2007 9:38:33 PM
From: ChanceIs	Read Replies (2) \| Respond to of 306849

Morgan Stanley blinks big time >>>Can't source it, but believed relaible.<<< We are downgrading large cap banks to Cautious from Attractive. We believe there will be contagion from subprime housing to prime housing to auto to card loans. We are raising our consumer credit losses which lower our median 2008 EPS estimate by 5%. We are lowering our price targets based on rising probability of our bear case and greatly diminishing probability of our bull case. We see further downside risk to EPS if a consumer credit recession spills into corporates. What's New: We expect the reduced supply of credit to drive the contagion. We believe the liquidity squeeze that started in July will drive up losses in consumer loan portfolios over the next 4 quarters beyond our prior forecasts. Our downgrade reflects our view that the coming consumer credit recession we see will trump capital market healing, which had been the basis of our Attractive call. The three primary drivers are tightening standards, significantly higher subprime delinquencies, and lower home prices. Implications: We rate Overweight banks with less credit exposure: BK, STT, NTRS, PNC. We remain Overweight JPM given its stronger capital levels relative to peers and lower CDO exposure. We rate Underweight banks with significant Midwest exposure, greater subprime exposure, and less capital: NCC, FITB, KEY, and C. We are downgrading BAC, WFC, and C; we are upgrading NTRS, STT, and STI. We have made these changes in our financial services team model portfolio. We are also making a number of price target and estimate changes (see Exhibit 1).