NEW YORK ( TheStreet) -- Goldman Sachs ( GS) is expected to show weak results in its main trading business when it reports fourth-quarter earnings before the market opens Wednesday, though so far in the earnings season accounting has been the main story. Citigroup ( C) missed analyst estimates Tuesday, sending the stock down some 6%, largely due to an accounting oddity known as a debt valuation adjustment (DVA). As a result of the rule, some banks take a negative DVA adjustment when their credit quality improves. That cost Citigroup $1.1 billion in the fourth quarter, versus Sandler O'Neill's estimate of $250 million. JPMorgan Chase ( JPM), on the other hand, surprised analysts on the positive side by releasing more capital they had reserved against bad loans than analysts had expected. Therefore, Goldman's earnings may be obscured by similar accounting-related quirks. In its core trading business, analysts are looking for weakness relative to past periods. Sandler analyst Jeffrey Harte is predicting core fixed income trading results will drop by 5% versus the third quarter while remaining essentially flat versus the fourth quarter of 2009. While equities will rise 2%, Harte sees that business bringing in revenues of just $1.9 billion versus nearly twice as much for fixed income. Investment banking is expected to improve for Goldman as merger and acquisition activity picked up. The fourth quarter was an active one for deals, and Barclays Capital analyst Roger Freeman expects M&A deal volume to rise 20% in 2011 versus 2010. Overall analysts surveyed by Thomson Reuters are looking for Goldman to earn $3.76 per share, compared to $2.98 in the third quarter and $8.20 per share a year ago.
Barclays' Freeman expects earnings at both Goldman and Morgan Stanley ( MS) to be somewhat subdued for the near term. "These businesses are likely to be in somewhat of a soul-searching mode at least for the next several months to determine how they will be able to generate acceptable levels of returns to investors given restrictions on principal trading activity and higher capital requirements against balance sheet exposures that will be working their way down the pipeline," Freeman wrote in a report published Jan. 11.