JMP Securities slashed its second-quarter earnings outlook on three universal banks - J.P. Morgan, Bank of America and Citigroup - citing weaker-than-expected trading in a "sputtering" US economy and on challenges posed by Europe's debt crisis. The brokerage expects the traditional banking businesses to remain a drag as sluggish new lending activity hurts net interest income.
Mortgage fees and credit costs are also expected to be sequentially lower, JMP wrote in a note to clients. Last week, JMP had cut its second-quarter earnings outlook on the full-service securities firms, Goldman and Morgan Stanley. It sees earnings at all five lenders to be hurt by a drop in fixed income, currency and commodities markets trading, and weakness in equities.
Debt underwriting will fall 15 percent sequentially, the brokerage added. However, in contrast to the universal banks, Goldman and Morgan Stanley will be far less impacted by the mortgage mess and the tougher regulatory environment, it said. "GS and MS at or below their tangible book value are a bargain for investors with some patience."
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