Whitney more cautious on second quarter

Meredith Whitney, of Oppenheimer, is telling clients that broker-dealers' second-quarter earnings are under pressure, reports MarketWatch. One new twist comes from the credit defaults swap market. She argues many banks apparently realized temporary gains when prices for CDSs rose in the first quarter. Unfortunately, that reversed in the second quarter, and may translate into losses. In particular, she notes Merrill Lynch had a $2.1 billion gain on "the fair value of company debt due to credit spreads widening." Other banks also benefited, but that may prove transitory. Whitney cut estimates for the top four investment banks by an average of about 40 percent for the second quarter and nearly 50 percent for the year. She recommends Goldman Sachs, Lehman Brothers and Morgan Stanley as market performers and rates Merrill Lynch under-perform.   

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