Morgan Stanley: Goldman Sachs to Cut Stock Buyback

Morgan Stanley said in a note this morning that Goldman Sachs Group Inc GS will not be able to buy back as much stock as many Wall Street analysts forecast. The analysts cited "global market shock," "counterparty default," and a "rise in RWA" as reasons that will keep Goldman's Q2 and Q3 buybacks substantially lower than Q4 onward ($300 million per quarter in Q2/Q3 versus $1.6 billion in Q4). On the Street, Morgan said that most analysts forecast buybacks at $1.25 billion or more per quarter.

Additionally, Morgan Stanley more than doubled its expectations for Goldman's settlement with the Department of Justice. Previously, the firm said Goldman would owe $1 billion; now, it said it expects a settlement could exceed $2.7 billion.

Those litigation costs led Morgan Stanley to slash 2015 EPS expectations by 25 percent to $12.22 – down from $16.60. Morgan Stanley kept 2016 and 2017 EPS expectations steady, down just 2 percent to $17.01 and $19.54, respectively.

Goldman Sachs closed Wednesday at $192.23. The stock is down 0.8 percent for the year, but up 9 percent since the start of 2014. Morgan Stanley has an Equal Weight rating on the stock with a price target of $206.