Morgan Stanley: Goldman Sachs to Cut Stock Buyback

Morgan Stanley said in a note this morning that Goldman Sachs Group Inc (NYSE: 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.