THE seizure in credit markets caused banks to stop lending to each other, sent stocks to the worst week in 75 years and prompted an unprecedented international effort to cushion global economies. It failed to convince Wall Street analysts to change forecasts for record United States profits.

Alcoa Inc, the biggest US aluminum producer, and Bank of America Corp, the second-largest US bank, posted the steepest retreats in more than two decades last week after third-quarter profits missed predictions by 28 percent and 69 percent. For the fourth quarter, analysts say companies in the Standard & Poor's 500 Index will earn about US$241 billion, the most ever.

"It's absolutely ridiculous," said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees US$30 billion. "Analysts are playing catch-up. It's crystal clear that you've got a weaker economy for several quarters. That's inescapable."

Investors who are expecting a rebound after almost US$7 trillion was erased from US equity markets this year may be disappointed as earnings fail to match forecasts. S&P 500 companies that earned less than analysts estimated in the past year dropped 13 times more than the index's average decline, data compiled by Bespoke Investment Group LLC show.

Bank losses

Another 56 S&P 500 companies report this week after the index fell 23 percent over eight straight days of declines. The benchmark gauge's 39-percent retreat in 2008 would be the worst since 1937 as banks' losses on mortgage-related investments ballooned to more than US$600 billion worldwide.

Operating profit at S&P 500 companies fell 7.5 percent last quarter and will jump 28 percent this quarter, led by banks and brokers, according to analysts' estimates compiled by Bloomberg News. That would exceed the record US$222 billion they earned in April-June last year.

Six of 10 industries will report record profits or come within 5 percent of all-time highs, according to Wall Street projections, which are usually based on company outlooks.

"The consensus will have to go down significantly," said John Praveen, Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial Inc, which oversees US$638 billion. "The numbers are way too high."

Any rebound may hinge on whether companies can overcome higher borrowing costs and a slowing economy to meet analyst forecasts that earnings will increase in the fourth quarter for the first time since April to June of 2007.

Costs rise

Credit dried up as banks' costs to borrow money for three months rose to 4.64 percentage points above what the US Treasury paid last week, the most since Bloomberg began compiling the data in 1984. The difference more than trebled in the past month as Lehman Brothers Holdings Inc, once the fourth-largest US investment bank, and Washington Mutual Inc, the biggest US savings and loan, collapsed.

Coach Inc, the largest US maker of luxury leather handbags, may report a record per-share profit of 77 cents in the last three months of the year, according to analysts.

That's after fiscal full-year profit rose at the slowest pace in nine years as consumers cut back on non-essential items and unemployment rose. The forecast is a 12-percent gain from the fourth quarter of 2007, when earnings at the New York-based company reached an all-time high.

Parker Hannifin Corp, the world's largest maker of hydraulic equipment, may earn as much as US$1.43 a share this quarter, a gain of 16 percent, according to analysts' estimates. On average, they expect the Cleveland-based company's shares to rise 60 percent in the next 12 months. A government report this month showed orders to US factories fell in August the most in almost two years.

'What do you do?'

"Now that financing isn't available, what do you do?" said Fort Washington's Sargen. "You pare back on capital spending. You start thinking about laying off workers. That's what intensifies the recessions."

New York-based Alcoa said last week third-quarter profit fell a more-than-estimated 52 percent and suspended its share buyback program to conserve cash. The stock fell 12 percent and 15 percent in the next two days.

The Bank of America, in Charlotte, North Carolina, last week said third-quarter earnings fell 68 percent to US$1.18 billion, or 15 cents a share.

The result more than twice the decline analysts forecast, causing the stock to tumble 26 percent. Analysts still expect adjusted per-share earnings at the lender to increase almost sevenfold this quarter.

Keith Horowitz, who covers the Bank of America at Citigroup Inc, said after the earnings announcement that his forecast of 61 cents a share was too high because he didn't anticipate the speed of deterioration in the credit markets. The New York-based analyst still expects a more than 10-fold increase this quarter.

Fourfold jump

At banks, brokerages and insurers, which had a loss of US$10 billion in the fourth quarter last year, analysts expect earnings of US$58 billion this quarter. That's a more-than-fourfold jump from what analysts say financial firms earned last quarter.

Meanwhile, financial firms in the S&P 500 are trading at only 88 percent of their so-called book value, or assets minus liabilities. The discount indicates that shareholders expect more asset writedowns and credit losses and that the companies would be worth more if they were liquidated.

Panicked investors and forced selling by funds has created buying opportunities in stocks that fell too far relative to earnings, said Stanley Nabi, who helps manage US$9.6 billion at Silvercrest Asset Management Group in New York.

"Irrationality is all over the place," said Nabi, vice chairman of Silvercrest. "We've gone to a point now where you can squeeze something so hard that there's nothing left to squeeze. I think we're darn close" to the bottom, he said.