Morgan Stanley

(MS) - Get Report

was among the hardest hit stocks in a broad financial sell-off Friday as an analyst cited concerns over its newly rebuilt fixed-income trading unit.

Morgan Stanley stock fell the farthest during morning trading, though by early afternoon

Bank of America

(BAC) - Get Report


Wells Fargo

(WFC) - Get Report

had dropped further. All three stocks were down by more than 3% versus a 2.1% decline for

JPMorgan Chase

(JPM) - Get Report

, which reported earnings that beat expectations but disappointed in some areas, including fixed income. The Morgan Stanley selling was on heavier volumes, however. Morgan Stanley volumes passed their trailing three month daily average shortly after noon, while the other large banks, aside from JPMorgan, had not done so as of two hours before the close.

Goldman Sachs

(GS) - Get Report



(C) - Get Report

were also lower Friday, as were several European banks with a large presence in fixed income markets.

Deutsche Bank

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Credit Suisse

(CS) - Get Report

were each down more than 5%.

The poor JPMorgan fixed income trading results are fueling concerns that Morgan Stanley, which recently re-staffed its fixed income trading unit, may be particularly vulnerable in this area, according to Brad Hintz, analyst at Bernstein Research.

"Since midyear last year you've seen Morgan Stanley's fixed income business improve relative to Goldman, but there's sort of a belief that what you have is a JV team versus the varsity and that Morgan Stanley's improving and in a difficult environment who will do worse? It'll be the guy who's improving rather than the old established team of Goldman Sachs. I'm not certain that that's true, but that would be certainly the commentary I'm picking up from clients," Hintz told

in a telephone interview.

In a note published Friday, Sandler O'Neill analysts wrote that JPMorgan's $2.7 billion in fixed income trading revenues were 26% below their expectations.

"This suggests an even more difficult fixed income trading environment than anticipated, and may foreshadow revenue shortfalls for peers reporting 4Q09 results next week," the Sandler analysts wrote. They did not single out any specific companies, but Morgan Stanley, Goldman, Citigroup and Bank of America, all of which rely heavily on fixed income trading, all report next week. Morgan Stanley will report its results on Wednesday.

Bernstein's Hintz says fourth-quarter weakness in fixed income trading is typical, as traders don't want to spoil a good year by taking many risks, which could negatively impact the bonuses they receive around this time. He expects trading revenues to pick up again in the first quarter.

A Morgan Stanley spokesman declined to comment.


Written by Dan Freed in New York