Investment Bank Earnings Preview: Giants Goldman Sachs and Morgan Stanley To See Revenue Decline

Citigroup Inc. (NYSE: C ) spurred a big run in financial stocks yesterday (Monday) after the commercial-banking giant beat Wall Street estimates by reporting a huge surge in quarterly profits. Don't expect the same exuberant response to U.S. investment bank earnings reports. Indeed, Wall Street analysts are expecting a very different set of results from the U.S. investment-banking sector, when giants Goldman Sachs Group Inc. (NYSE: GS ) and Morgan Stanley (NYSE: MS ) report their third-quarter results this week. Goldman reports today (Tuesday) and Morgan Stanley tomorrow (Wednesday). Analysts started reducing profit forecasts on the U.S. investment-banking sector back during the summer - and with good reason: Uncertainty about the strength of the economic recovery - and worries about the Bush tax cuts and the midterm elections - have led to a major drop-off in such important businesses as fixed-income trading. Dealmaking volume - thanks to the spike in mergers and acquisitions - enjoyed an advance in August. And fees from bond underwriting could at least partly offset drop-offs in the equity-underwriting and advisory businesses. But it won't be enough: As a result, analysts are forecasting an overall decline in investment-banking revenue from last year's third quarter.