Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) are among firms to have first-quarter earnings estimates raised by analysts after Jefferies Group Inc. (JEF) announced a surprise jump in fixed-income trading revenue.
Total trading revenue at 10 of the largest investment banks will probably surge more than 70 percent from the fourth quarter, Chris Kotowski, an Oppenheimer & Co. analyst, wrote yesterday. David Trone, an analyst at JMP Securities, said in a note today that fixed-income trading at the five biggest Wall Street firms may climb 76 percent from last quarter.
Banks are likely to benefit from a rising equity market, tightening credit spreads and a pickup in bond issuance. The improved environment comes as Greece reached an agreement with creditors in the biggest sovereign-debt restructuring in history, the U.S. unemployment rate fell and the European Central Bank expanded lending.
Jefferies climbed in New York trading March 20 after reporting fiscal first-quarter earnings that beat analyst estimates as fixed-income trading climbed 6.6 percent from a year earlier and more than doubled from the fourth quarter. Chief Executive Officer Richard Handler said on a conference call that the firm saw “healthy customer flows and reasonable bid-ask spreads.”
Jeff Harte, an analyst at Sandler O’Neill & Partners LP, had predicted Jefferies’s revenue from trading securities such as bonds would decline from the year-earlier period.
Trone raised his first-quarter earnings-per-share estimate for New York-based Goldman Sachs to $3.22 from $2.81. Kotowski increased his Goldman Sachs estimate to $3.31 from $2.91 and boosted his estimate for Bank of America Corp. 2 cents to 14 cents. John McDonald, a bank analyst at Sanford C. Bernstein & Co., increased his Bank of America estimate to 18 cents a share from 12 cents, and Citigroup’s to $1.30 from $1.07.
The fourth quarter was the worst for investment banking and trading revenue at the largest firms since 2008, as concern that Europe’s debt crisis would lead to a global slowdown crimped trading activity and deal volumes. Trading revenue this quarter will probably remain below the levels of last year’s first three months, Kotowski wrote.
Equities-trading revenue may jump 31 percent from the fourth quarter, Trone said. Investment-banking fees will probably climb 16 percent from last quarter, while falling 18 percent from the first quarter of 2011, he wrote.