Sandler O'Neill & Partners is lowering its second-quarter and full-year earnings estimates for three of the nation's four-largest banking companies due largely to concerns about declining trading revenues.
In a research note published Tuesday, Sandler said it that while it sees positive signs for Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. — particularly in the area of credit quality — it expects revenues to be negatively affected by a slowdown in fixed-income and equity trading activity. So far this quarter, cash and equity trading volumes are down 8% and 9%, respectively, since March 31, while corporate trading volumes are down 16%.
For the quarter, Sandler is reducing B of A's per-share estimates by 13.3%, to 26 cents; Citi's by 11.5%, to $1.15; and JPMorgan Chase's by 2.3%, to $1.27. For the year, it is lowering estimates for B of A by 3.8%, to $1.01; for Citi by 9.2%, to $4.34; and for JPMorgan Chase by a penny, to $4.94. Its quarterly and yearly estimates for Citi and JPMorgan Chase remain above consensus industry estimates.
Despite the headwinds banks are facing, Sandler said that it believes the recent drop in the stock prices of money-center banks has been "extreme." Though it is cutting earnings estimates for this year, Sandler pointed out that its estimates for 2012 remain largely unchanged.
Shares of B of A, Citi, JPMorgan Chase and Wells Fargo & Co. all fell sharply on Monday on reports of weak economic news and concerns that regulators could levy a capital surcharge against banks that pose the greatest risk to the financial system should they fail.
At midday, shares of B of A and JPMorgan Chase were up slightly, while Wells' and Citi's shares were each down a few cents.
