By Colin Barr
September 22, 2010

Wall Street’s getting wobbly about the investment banks.

Goldman Sachs

fell 2% and Morgan Stanley

dropped 3% Wednesday after the latest round of wishy-washy comments about the banks’ profit prospects.

Deutsche Bank slashed its third-quarter earnings expectations for the firms, citing up-and-down markets, weak money-raising activity and soft asset management trends. It said it expects Goldman to make $1.95 a share, down from the previous $3 target, and Morgan Stanley to earn 15 cents, against the earlier estimate of 50 cents.

Deutsche Bank also noted that questions remain on the capital standards the banks will be held to, even though most observers have been saying U.S. banks won’t be forced to raise new money to comply with rules set by the Basel committee of international supervisors.

Yet for all these “headwinds,” the bank still likes the stocks, analyst Michael Carrier writes.

“While the stocks could be a bit weak in the near term on downward estimate revisions,” he explains, “we expect it to be short lived and continue to like the long term risk/reward.”

He cites strong capital levels, low valuations and the banks’ “strong relative positioning,” by which he apparently means Goldman is really savvy and Morgan Stanley shouldn’t be able to botch things much more than they already have.

As it happens, Deutsche Bank has felt this way for a while — not that clients have benefited from this supposed insight.

The bank has rated shares of both Goldman and Morgan Stanley buy for about a year, a period during which the stocks have declined. Over that span, the firm has cut its price target on Goldman from $220 to $205 to a current $200.

What’s next? Goldman shares were off $3 at $148 and change Wednesday.

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