In a note to clients on Monday, Staite also forecasted a 20% drop in fixed-income trading revenue, because "July and August were very slow months as investors sat on the sidelines waiting for more clarity on Fed tapering, Syria and the EM slowdown and we believe the weakness has extended into September."
The analyst added that "While FICC and mortgages are clearly major weak spots we think other bank revenues will be relatively stable including net interest income which we expect to be flat YoY." That translates to an expected year-over-year revenue decline of just 5%, however, Staite made some pretty sharp cuts to his third-quarter earnings estimates for some of the big banks:
- Staite cut his third-quarter EPS estimate for Morgan Stanley by 25% to 38 cents from 50 cents.
- Atlantic Equities' estimate for Goldman Sachs was cut by 18% to $2.47 from $3.00.
- Staite's third-quarter EPS estimate for Citigroup was lowered by 14% to $1.05 from $1.22.
"Our EPS estimates for JPM, BAC and WFC were already recently adjusted following comments at an industry conference. JPM was previously cut by 14%, BAC by 10% while WFC was held flat," Staite wrote.
How will investors react? How will you react?It all depends on your investment horizon. For investors who can commit for several years and ignore several months of volatility from the mortgage decline and the continued hysteria over the eventual curbing of the Federal Reserve's monetary stimulus, the stocks of the largest U.S. banks are trading for significant discounts to smaller regional banks, on a forward price-to-earnings basis, even though shares of the big banks have been so strong this year. (I:BKX) was down 1.7% to 62.51, with all 24 index components seeing declines. Citigroup was weakest among the large-cap banks, with shares down over 3% to $49.62. Goldman Sachs was down 2.8% to $165.03, and Morgan Stanley was down 2.7% to $27.44.
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