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Tue, Sep 18, 2007 - Page 10 News List

Investors fidgety as 3Q earnings reports approach

LOOKING FOR SIGNS Four major investment banks and smaller ones make up about a quarter of S&P's 500 index, whose strength is seen as crucial


On Wall Street, now more so than any time in recent memory, everyone is holding their breath and fearing the worst.

Four of the biggest US investment banks will report third-quarter earnings in the next several days.

Everyone -- from traders on the floor of the New York Stock Exchange to highly paid bankers perched in corner offices -- is looking for any kind of sign these financial institutions have weathered one of the rockiest markets in years.

Goldman Sachs Group Inc, Morgan Stanley, Lehman Brothers Holdings Inc and Bear Stearns Cos have been squeezed by turmoil in the mortgage industry and tightening credit conditions.

Their results will provide a badly needed first glimpse into the health of the global financial market.

The investment banks, along with other financial firms, make up about a quarter of the Standard & Poor's 500 index.

It is a long-held belief that this group must show strength in order for the blue chip index to advance -- and anything less could extend the volatile conditions that marred most of the summer.

As it stands, the firms on average lost about 20 percent during the quarter -- with Bear Stearns leading them with a 31 percent decline.

"They are terribly, terribly important," said Quincy Krosby, chief economist for The Hartford. "I don't think you can have a truly sustainable rally unless the financials stabilize. For the retail investor, the earnings will give general guidance for where we are in unraveling the crisis."

Individual investors have been nervously watching their retirement accounts and stock portfolios tumblee will be looking for how much troubled debt is on the firms' books.

Last month, Lehman shuttered most of its mortgage business.

Morgan Stanley, which has very little exposure to subprime mortgages, is it markets to provide and instant psychological boost for the banks.

"People get worn out by the crisis itself," Krosby said.

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