Meredith Whitney, the Wall Street analyst who received death threats after writing a negative report about Citigroup, has predicted that financial stocks could plummet by as much as half in the wake of the Bear Stearns fire sale.

In a note released today, the Oppenheimer analyst says Merrill Lynch, UBS and Citigroup will be the worst hit. Lehman brothers shares are already down 30 per cent in pre-opening trading.

This is likely to be the start of a string of bad news banking stories this week as three leading investment banks are set to announce billions of dollars worth of write-offs owing to the credit crisis.

Analysts were scrambling to re-adjust their forecasts downwards for big investment banks.

UBS Analyst Glenn Schorr has downgraded Goldman Sachs, Lehman, TD Ameritrade, Bank of New York Mellon, State Street and Invesco, to neutral from buy. He thinks the stocks could reach 20-year low valuations.

Schorr said that given how the liquidity squeeze and the de-leveraging in the capital markets brought down Bear Stearns, “the odds are high” that things will get worse for financial services companies before they get better.

He believes that even with government intervention, “the capital markets will still be facing a recession,” as well as “very weak activity levels, and questions about book value, future returns, leverage ratios, regulation and new (lower) valuation ranges.”

Goldman Sachs, which has so far seemed almost immune to the crisis, is expected to reveal a $3 billion (£1.48 billion) hit in its first-quarter results tomorrow.

Lehman Brothers, tipped by many in the market to be the next banking casualty after Bear Stearns, is predicted to unveil tomorrow that its profits have fallen by 63 per cent to $425 million, and revenue has fallen by 34 per cent to $3.35 billion in the first quarter. It has one of the largest exposures to mortgage-backed securities.

Bear Stearns has cancelled the results presentation it had scheduled for today because of the offer from JP Morgan.

Morgan Stanley, which already announced writedowns of $9.4 billion owing to its sub-prime exposure, is expected to announce a further hit of about $500 million.

Analysts are predicting more misery over the coming months as lending conditions tighten.

Ms Whitney, Forbes’s second-highest-ranked stock picker for 2007, set off the biggest stock market decline in the US since August with a note on Citigroup.

Brad Hintz, an analyst at Sanford Bernstein in New York, said: “The unfortunate events at Bear Stearns will lead to sharply increasing funding pressure on the other four large capitalisation brokers (Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley) in the near term.

"And, although these four companies have strong capital bases and capable corporate treasuries and repo desks, investing in the brokers now is a bet on a recovery of confidence in credit markets that are experiencing the worst turmoil in several decades.”

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