Shares of Morgan Stanley Dean Witter fell for a third consecutive session Wednesday, shedding 4.65% as analyst Amy S. Butte of Bear, Stearns & Co. downgraded the stock to "neutral" from "attractive."

Ms. Butte announced last week that she would review the ratings of all the investment banks she covers but on Wednesday reiterated her "buy" rating for Lehman Brothers Holdings Inc. and her "attractive" rating for Goldman Sachs Group Inc. Her ratings for Merrill Lynch & Co. remained at "attractive," for Legg Mason Inc. at "buy," and for Friedman Billings Ramsey Group at "neutral." Morgan Stanley's shares had fallen to $76.625 by Tuesday from their all-time high of $109.375 on Sept. 11. Even so, Ms. Butte wrote in her research note that she was downgrading the company because of its market valuation, an indication that she still considers it not cheap enough to buy. On Wednesday, Morgan Stanley closed at $73.0625, down $3.5625.

Other analysts remained somewhat more bullish; Morgan Stanley scored 1.9 out of a possible 5 on the First Call/Thomson Financial buy-to-sell scale, holding several medium ratings, two "strong buys," and four "buys."

Ms. Butte said in her research note that she expects Morgan Stanley to achieve a 25% return on equity next year, as well as earnings of $4.80 per share, the highest for the brokerages she covers. But she wrote that those earnings would be "a material decline from consensus assumptions of 30% [ROE and earnings of] $5.50 per share." She said she doubts that Morgan Stanley will be able to maintain its income from equity derivatives and telecom investment banking next year.

"The combination of retail securities, asset management, capital markets, and credit cards does create a more diversified earnings stream," she wrote, "one with a great deal of operating leverage."

Elsewhere in the market, Sandler O'Neill and Partners analyst Ken Puglisi cut his rating for Sterling Bancshares to "market perform," from "outperform."

In his research note, he wrote that Sterling's shares had surged 62% during the last 27 weeks. The bank deserves to trade at a premium, he said, but at 15.8 times its expected 2001 earnings per share is "fairly valued."

Sterling closed at $16.50, down $1.3125, or 7.37%.

Most financial stocks fell Wednesday, suffering amid uncertainty about the presidential election's result. Scott J. Brown, an economist at Raymond James & Associates, wrote in a note that "the bond market will not like to see the same party controlling the White House and Congress. Equities, on the other hand, love the Republican Party."

The American Banker index of 225 banks was down 1.29%, and its index of the top 50 banks dropped 1.31%. The Nasdaq also fell, by 5.39%, and the Dow Jones industrial average spent most of the morning in flux and closed down 0.41%.

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