Goldman Sachs, Morgan Stanley Estimates Cut by Atlantic

The biggest U.S. banks’ fixed-income trading revenue will probably fall 20 percent in the third quarter from a year ago on lower volumes, according to Richard Staite, an analyst at Atlantic Equities LLP.

Staite cut his estimate for Goldman Sachs Group Inc.’s per-share earnings 18 percent to $2.47 and Morgan Stanley’s 25 percent to 38 cents, according to a research note today. Staite also cut his estimate at Citigroup Inc. by 14 percent to $1.05.

JPMorgan Chase & Co., the biggest U.S. bank, and Barclays Plc have told investors that third-quarter trading revenue will probably drop from a year earlier. Jefferies Group LLC said last week that revenue from fixed-income trading plunged 88 percent in its fiscal third quarter that ended Aug. 31 compared with the same period in 2012.

“July and August were very slow months as investors sat on the sidelines waiting for more clarity on Fed tapering, Syria and the emerging-market slowdown, and we believe the weakness has extended into September,” Staite wrote in a note, referring to uncertainty about when the Federal Reserve would slow its $85 billion-a-month bond-buying program. “In contrast September 2012 was very active in rates and foreign exchange due to improvements in the Eurozone.”

Mortgage production revenue at the biggest banks will probably be down 55 percent, Staite added. That’s because the third quarter in 2012 was “a strong period for both volumes and margins,” he said.

1,800 Jobs

Wells Fargo & Co., the biggest U.S. mortgage lender, said last week that it’s cutting about 1,800 jobs in its home-loan production business as rising interest rates curb demand for refinancing. Chief Financial Officer Timothy Sloan said Sept. 9 that the San Francisco-based bank may originate about $80 billion in home loans during the third quarter, a 29 percent decline from the three months that ended June 30.

Staite previously cut his estimates for JPMorgan by 14 percent and Bank of America Corp. by 10 percent following their comments at a conference, he wrote. Wells Fargo’s estimates were held flat.

“We think Bank of America will show better underlying cost and revenue trends than its major peers,” Staite said.

Atlantic Equities has an “underweight” recommendation on Morgan Stanley, U.S. Bancorp, and Wells Fargo, a “neutral” rating on Goldman Sachs, and an “overweight” recommendation on Bank of America, Citigroup, JPMorgan and PNC Financial Services Group Inc.

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