Citi Investment Research cut its price targets and second-quarter outlook on several U.S. banks including Bank of America Corp (BAC.N) (BofA) and Goldman Sachs (GS.N) as slow economic recovery hurts trading.
After a strong first-quarter performance, the second quarter was an about-face for U.S. banks amid signs of slower growth, re-ignited euro zone concerns, wider credit spreads and falling equity and commodity prices, Citi said.
The brokerage cut its price target on BofA to $8 from $9, on Goldman Sachs to $110 from $145, on JP Morgan Chase & Co (JPM.N) to $43 from $45, and on Morgan Stanley (MS.N) to $16 from $20.
Citi also cut its second-quarter earnings estimates for JP Morgan Chase due to slower-than-expected trading activity and higher near-term loss expectations of $3.5 billion for the investment bank's chief investment office (CIO) trading portfolio.
Industry-wide interest rates activity turned soft given a drop in long-term yields, while credit has been hindered by wider spreads and as mortgage performance remains poor, the brokerage said.
The euro zone debt and financial crisis is stifling activity in the region, eroding investor confidence and dampening economic growth in other parts of the world.
"Although European volumes tend to be seasonally supported in the second quarter by the dividend season, we expect equity derivatives revenues to be hurt by lower structured business as investor risk appetite receded," analysts led by Keith Horowitz said.
Horowitz is rated five stars for the accuracy of his earnings estimates on the banks under his coverage, according to Thomson Reuters StarMine data. StarMine awards five stars to the top 10 percent of analysts.
Shares of JP Morgan Chase fell 5 percent to $34.99 in premarket trade. They closed at $36.78 on the New York Stock Exchange on Wednesday.
Shares of BofA and Morgan Stanley were also down more than 1 percent.
(Reporting by Sagarika Jaisinghani in Bangalore; Editing by Roshni Menon)