[On Thursday, Goldman Sachs' (nyse: GS - news - people ) investment bank research analyst William Tanona cut his view on the brokerage sector to "neutral" from "attractive," after having upgraded the group after the mid-March implosion of Bear Stearns. With storm clouds darkening over the financial markets, Tanona now says that "fundamentals continue to deteriorate" and that recovery will take longer than originally thought.
Just three days ago, his colleagues in Goldman's strategy department reversed course and urged investors to "under weight" financial stocks in their portfolios, admitting they erred in recommending the sector in early May on a view that capital raising and government stimulus of the economy would benefit the stocks. "Our thesis was clearly wrong in hindsight," the strategists wrote.
Worsening trends in the financial markets have made fibbers out of many a bank chief in recent weeks. Fortis (other-otc: FORSY.PK - news - people ), the Belgian banking giant, pulled a 180 Thursday, saying it would raise $12.5 billion in capital, $2.3 billion of it through a share sale and the rest from scrapping its dividend and selling assets. Earlier, the company had said it didn't need to raise capital.
Same thing with Merrill Lynch (nyse: MER - news - people ), which said earlier this year it didn't need more capital after raising $6 billion in January. In April, it sold another $9.6 billion worth of securities.
Lehman Brothers (nyse: LEH - news - people ) also said earlier it had adequate capital and then went out in early June and raised $6 billion, announcing the same day a wider than expected $2.8 billion second-quarter loss, all because of more write-downs. That came just weeks after Chief Executive Richard Fuld told shareholders at the annual meeting that the worst of the crisis was over.
"Bank managements have been unusually lacking in knowledge about the depth of the problems in their companies," says Richard Bove, an analyst at Ladenburg Thalmann. "Their perception of events seems to be skewed by desire as opposed to reality."
What's more, financial companies are running out of ways to raise capital without hitting existing shareholders. Ongoing write-downs may make Merrill's chief executive, John Thain, think twice about holding on to the company's stake in Bloomberg, the information and news service, which some value at $5 billion to $6 billion.
"A sale of Bloomberg is increasingly likely if it has to raise additional capital," says CreditSights analyst David Hendler.
"There's a major credibility issue reflected today in the cratering of these stocks," says Michael Holland, chairman of Holland & Co.]-Forbes
