IPO Drought

About $14 billion of global initial public offerings were completed in the first quarter, a 67 percent plunge from a year earlier, data compiled by Bloomberg show. Sales of U.S. high-yield debt weren’t much better, tumbling 54 percent to $40 billion. In total, the Goldman Sachs analysts said, underwriting and advisory fees probably will decline 24 percent for the largest U.S. banks, not including their employer.

The recent 22 percent cut in Goldman Sachs’s estimated per-share profit, while a more severe swing than in at least two-thirds of the quarters since the start of 2009, isn’t the largest. In the second quarter of 2010, analysts sliced $1.99 -- or 50 percent -- off their estimate in the weeks before the firm reported results. Often, such changes go too deep, and Goldman Sachs beats the final estimate, as it has in 16 of the past 17 quarters.

While analysts adjust figures based on executives’ comments at investor conferences, Goldman Sachs’s leaders typically don’t provide public guidance. The bank’s staff does talk privately with analysts on topics including market conditions, and did so in recent weeks ahead of its April 19 earnings announcement, according to two people involved in the discussions who asked not to be identified to preserve relationships.

The changing perceptions about the bank’s first-quarter performance are notable because Goldman Sachs executives have been outspoken about the potential for a turnaround in bond trading, their commitment to the business and their plans to benefit when it does rebound. It has now become clear this won’t be the quarter when it does.

Market Swings

Morgan Stanley Chief Financial Officer Jonathan Pruzan said March 15 that market swings made it hard for firms to sell securities or consummate deals, and that rattled clients weren’t trading as much. Citigroup and JPMorgan also shared their views, saying trading and investment banking would suffer double-digit declines.

Markets rebounded in March, and junk-bond yields, which rose as high as 887 basis points above similarly dated Treasuries in February, fell to 705 basis points on March 31, about the same as where they began the year, according to data compiled by Bloomberg. U.S. investment-grade bond sales increased over the prior year.

That’s not enough for Christopher Wheeler, an analyst at Atlantic Equities LLP, who cut his Goldman Sachs estimates March 22 to $1.74 a share, a 67 percent drop. James Mitchell of Buckingham Research Group lowered his estimate by 51 percent, according to data compiled by Bloomberg.

By the time Goldman Sachs and Morgan Stanley publish earnings, more analysts will have weighed in, potentially leading to more estimate changes.