Bloomberg News

Goldman Sachs, Citigroup Profit Estimates Cut on Weak Trading

June 27, 2011

June 27 (Bloomberg) -- Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley were among Wall Street banks whose second-quarter profit estimates were cut by analysts, who said the companies’ trading revenue was likely to tumble.

Goldman Sachs, the fifth-largest U.S. bank, will probably earn $1.85 a share, 53 percent less than an earlier estimate, Glenn Schorr, an analyst with Nomura Holdings Inc., wrote in a note to investors today. Royal Bank of Canada’s Gerard Cassidy cut his previous estimate for Citigroup’s profit by 20 percent to $2.96 billion, or 97 cents a share. Guy Moszkowski, an analyst with Bank of America Corp., reduced his Morgan Stanley estimate by 9 percent to 40 cents a share.

Analysts’ estimates for second-quarter profits on Wall Street are tumbling amid concerns that the Greek debt crisis and slowing U.S. economic growth have lowered trading volumes. Fixed-income trading revenue at U.S. lenders will fall 30 percent from the first quarter and equities trading will drop 15 percent, Keith Horowitz, an analyst with Citigroup, wrote June 19.

“Our new 2011 and 2012 earnings estimate reflect a more cautious outlook for equity and fixed-income trading,” wrote Cassidy, who began covering New York-based Citigroup in a May 31 report called ‘The Reawakening of a Global Giant’. “We anticipate that the company and its competitors will move to lower its operating expenses in the capital markets division later this year should the trading volumes remain low through the remainder of 2011.”

‘Especially Challenged’

Schorr cut his estimates for other banks, including New York-based JPMorgan Chase & Co. and Charlotte, North Carolina- based Bank of America. Moszkowski reduced his estimate for Goldman Sachs.

Trading in commodities has been “especially challenged” at Goldman Sachs, Moszkowski wrote. The Bank of America analyst, who has a “neutral” rating on the New York-based firm’s shares, reduced his estimate by 37 percent to $2.20 a share. The average estimate of 21 analysts surveyed by Bloomberg is $3.28 a share.

Edward Najarian, an analyst at International Strategy and Investment Group in New York, cut his Goldman Sachs estimate 28 percent to $2.10 a share on concerns over trading revenue. Najarian has a “buy” rating on the firm’s shares.

Atlantic Equities LLP’s Richard Staite also reduced his previous estimate for Citigroup by 13 percent to $2.85 billion, or 95 cents a share, in a note today. The average estimate 22 analysts surveyed by Bloomberg is for 99 cents a share.

The London-based analyst cut his Goldman Sachs estimate by 40 percent to $2.17 a share on June 17. He has a “neutral” rating on Goldman Sachs shares.

Citigroup’s Fixed-Income

Citigroup’s fixed-income revenue will tumble 20 percent from the first quarter, compared with a 33 percent drop at Goldman Sachs, according to Staite, who has an “overweight” recommendation on Citigroup. The bank’s equity trading revenue will fall 15 percent, similar to Goldman Sachs, Staite wrote. Citigroup’s first-quarter trading revenue was $4.9 billion, compared to $6.65 billion for Goldman Sachs.

Goldman Sachs and Citigroup shares are down 23 percent and 15 percent this year respectively. Spokesmen David Wells at Goldman Sachs, Jon Diat at Citigroup, and Mark Lake at Morgan Stanley declined to comment on the reports.

-- Editors: William Ahearn, Steve Dickson

To contact the reporters on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net;

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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