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Citigroup bank analyst Keith Horowitz and his team have cut their price targets and second quarter earnings estimates for Wall Street’s biggest banks. This downgrade stems from a downturn they have seen in fixed-income trading, which was strong in the first quarter but reversed in the second quarter.
This slowdown stems from signs of slower growth in the U.S. and the global economy, rising concerns over Europe, wider credit spreads, a risk-off flight to quality, and declining equity and commodity prices.
Horowitz expects Fixed Income Clearing Corporation’s (FICC) trading revenue to be down 40 per cent quarter-over-quarter (QoQ), equities down 20 per cent QoQ and primary investment banking fees down 15 per cent QoQ across the board.
In light of that, Goldman Sachs Q2 EPS estimates were cut from $2.70 to $0.80 including 14 cents of debit valuation adjustment (DVA) gains.
Morgan Stanley is cut from $0.51 to $0.31 (including 22 cents of DVA gains).
Bank of America is cut from $0.19 to $0.12 (including 4 cents of DVA gains).
JP Morgan is cut from $0.87 to $0.70 (including 8 cents of DVA gains, a 60 cents drag from its CIP losses).
He also cut the price target for each, with BofA to $8 from $9 (neutral), Morgan Stanley to $16 from $20(neutral), Goldman Sachs to $110 from $145 (buy), and JP Morgan to $43 from $45 (buy).
JP Morgan is his top pick since the stock price looks attractive and since he expects the London Whale trading loss to be contained.