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Investment Banking Earnings Highlight Wall Street’s New Vulnerabilities

The collapse of The Bear Stearns Cos. and Lehman Brothers Holdings Inc. (OTC: LEHMQ), the forced takeover of Merrill Lynch and the decisions by Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) to get commercial-banking licenses seemed to signal that the investment-banking business model was dead.

Since then, however, Goldman Sachs, in particular, has posted an astonishing run of profitability, earning gigantic sums even while the rest of the U.S. economy languished.

But now it may be time for those Wall Street heavyweights to pay the piper: Heavyweights Goldman Sachs and Morgan Stanley are posting their third-quarter results this week. U.S. investment banks are looking at their worst quarter since just after the Lehman collapse. And analysts are slashing revenue forecasts just as the top players in this closely watched and often-vilified sector are getting ready to announce bonuses.

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