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TheStreet Open House

Goldman, Morgan Stanley Seen Taking 2Q Trading Hit

Stocks in this article: GS MS JPM

NEW YORK ( TheStreet) -- Slower trading volumes and losses on fixed income holdings are likely to contribute to weaker second-quarter profits when Morgan Stanley (MS - Get Report) and Goldman Sachs (GS - Get Report) report earnings next month, according to an analyst report published Wednesday.

Noting June 11 comments by JPMorgan Chase (JPM - Get Report) that second-quarter trading revenue was up at least 10% to 15% vs. the same period last year, Atlantic Equities analyst Richard Staite wrote that since that time "we believe volumes have slowed and banks may also have suffered modest losses on their inventory of credit and mortgage trading assets due to credit spread widening." The analyst also points to a slowdown in debt underwriting as interest rates have risen in recent days.

Staite estimated industry-wide revenue "might be up only 10%" vs. a year ago and will be down about 20% from the first quarter. He estimated Morgan Stanley revenue in its fixed income currencies and commodities unit at $1.25 billion. While that would be "a significant improvement" from a year ago "which was abnormally weak," it will fall short of company targets of $1.5 billion to $2.5 billion per quarter.

Staite left his underweight rating on Morgan Stanley while cutting second-quarter earnings estimates by 18% to 42 cents a share. He also left his neutral rating on Goldman, but reduced second-quarter estimates by 16% to $2.70 a share. Analysts, on average, are looking for earnings of $2.94 a share from Goldman and 48 cents from Morgan Stanley, according to Thomson Reuters data.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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