Fixed income revenues for Europe's investment banks look set to fall 20 percentfrom a year ago as the difficult trading seen in the second half of 2013 hascontinued, Morgan Stanley analysts write in a research note.
Deutsche Bank and Barclays will be most affected inEurope, and Morgan Stanley cuts its earnings per share (EPS) forecasts for thenext three years for Deutsche by 7-11 percent and for Barclays by 9-12 percent.
Barclays shares fall 0.6 percent and Deutsche Bank dips 0.2 percent,underperforming a 0.8 percent rise in the DJ STOXX European bank sector.
"Given low leverage ratios, competition from U.S. firms and furtherdeleveraging, we believe Deutsche Bank and Barclays will continue to loseshare," analyst Hubert Lam writes in the note.
U.S. rivals JP Morgan and Citigroup have already signalledbond trading income has been week in the first quarter.
Morgan Stanley estimates that the weakness in fixed income would driveoverall investment bank revenues for Europe's banks down 10 percent in the firstquarter from a year ago, with equities income seen up 4 percent and advisoryrevenues down 6 percent on the year.
Revenues from fixed income - especially rates - have fallen sharply sinceMay, as tougher regulation and a move by the U.S. central bank to put the brakeson its bond buying programme have prompted many investment banks to restructureoperations.
Reuters messaging rm://steve.slater.thomsonreuters.com@reuters.net
Barclays (BARC)