NEW YORK (
analyst Keith Horowitz offered a bearish outlook for fixed income trading on Friday, and subsequently ratcheted down earnings estimates for four of the big banks.
Fixed income trading was a bright spot for the financials in 2009, but Horowitz believes the gravy train ground to a halt in the fourth quarter and cut his view on
Bank of America
(BAC - Get Report)
(GS - Get Report)
(MS - Get Report)
(JPM - Get Report)
"Our analysis points to a substantial decline in FICC [fixed income, commodities and currencies businesses] trading in 4Q09, and then we are looking for industry fixed income trading to fall 15%-20% in 2010," the note reads.
Horowitz adds that regulatory reform is likely to put further pressure on revenue in 2011, which could negatively affect the banks' FICC businesses by another 5% to 10%. His changes to estimates are as follows:
Bank of America
: Horowitz kept intact his estimate for a loss of 66 cents a share in the fourth quarter but dropped his 2010 full-year EPS estimates by a nickel to 45 cents a share, citing the lower FICC revenue and few if any benefits from expected asset sales. The current average analyst estimate, according to
, is for the Charlotte-based company to post a loss of 51 cents a share for the final quarter of 2009, but a profit of 84 cents for 2010. The company is scheduled to report its results on Jan. 20.
Bank of America's revenue from FICC is estimated to fall 16% this year, Horowitz writes. "We do not expect Bank of America to significantly increase its risk appetite and will focus on the flow business, so we expect any growth will likely come from market share gains rather than opportunistic trades," the note says. "International/emerging markets revenues, products with greater complexity, electronic trading are some of the gaps in Bank of America's capabilities that management will need to address going forward."