NEW YORK ( TheStreet) -- Citigroup ( C) 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), Goldman Sachs ( GS), Morgan Stanley ( MS) and JPMorgan Chase ( JPM). "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 Thomson Reuters, 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."
Horowitz reiterates, however, that Bank of America has "excellent value" and maintains a buy rating on the institution. Goldman Sachs: Horowitz lowered his view for the fourth quarter by 25 cents to a profit of $5.25 a share. He maintained his 2010 earnings estimate of $19 a share "as our lower FICC
view was mostly offset by lower compensation accrual assumption," the note says. The current average analyst estimate, according to Thomson Reuters, is for Goldman Sachs to earn $5.39 a share in the fourth quarter and $18.69 a share for 2010. The company reports its results on Jan. 21. "We continue to see opportunity in Goldman Sachs with strong management and a good market positioning," Horowitz writes, maintaining a buy rating on Goldman Sachs. Morgan Stanley: This was the biggest cut. Horowitz slashed fourth-quarter earnings estimates by 30 cents to 36 cents a share. He also lowered his 2010 EPS estimate by 50 cents to $3.10 a share. The new views are comfortably below Wall Street's current average analyst estimate for Morgan Stanley to post a profit of 49 cents a share in the fourth quarter and $3.31 a share for 2010. Morgan Stanley is also expected to report its results on Jan. 21. JP Morgan Chase: Horowitz now sees earnings of 55 cents a share for JP Morgan in the fourth quarter, down 15 cents from his prior view. For 2010, he's looking for a profit of $2.90 a share, a cut of 30 cents. He also changed his risk rating on the company to "medium" from "high," according to the note. Horowitz rates JPMorgan Chase at a hold.
"With our expectation that the majority of OTC derivatives will be cleared, this is no longer a competitive advantage, which means that JPMorgan is exposed to losing market share as well as above-average margin compression since they were benefiting from very favorable pricing relative to peers due to strong counterparty strength," the note says. JPMorgan is slated to report its results on Jan. 15. Analysts on average expect earnings of 63 cents a share for the fourth quarter of 2009 and $3.17 a share in 2010. Shares of Bank of America were up 1% to $16.76 in recent trades, while Goldman Sachs shares were down 1.2% to $175.49, Morgan Stanley's shares were off 1.6% to $32.38, and JPMorgan's stock slipped 0.7% to $44.45. --Written by Laurie Kulikowski in New York.