European Bank Earnings to Fall Further, Goldman Says

Europe's banking stocks, the worst- performing shares in the region this year, will fall further because the credit and housing markets are likely to keep deteriorating, Goldman, Sachs & Co. strategists said.

``While banks are starting to look attractive on various valuation metrics, this ignores the likelihood that earnings estimates will need to be revised down further,'' Peter Oppenheimer, head of pan-European strategy at Goldman Sachs, wrote in a report today. ``The downgrade cycle is likely to be deeper and longer-lived than anticipated.''

Oppenheimer's team advised investors to hold 17 percent of their equity funds in bank shares. That is less than the 18.5 percent for the industry group in the Dow Jones Stoxx 600 Index, a regional benchmark.

The top 10 investment banks together wrote down $30 billion of losses in the third quarter on holdings of subprime mortgages and leveraged loans. Analysts are cutting price targets on concern that losses from the U.S. housing market will deepen.

The Stoxx 600 Banks Index has dropped 12 percent so far this year, the biggest retreat among the 18 industries in the broader index.

Also today, Goldman Sachs analysts in New York downgraded a recommendation on the shares of large U.S. banks to ``neutral'' from ``attractive.'' They said banks with ``higher risk mortgage products'' are likely to underperform.

pennystock-investor.com