Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) Hurting From Drop-Off in Investment Banking

Analysts are cutting their earnings forecasts for Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS), two of the largest U.S. investment banks, as the result of a general decline investment banking activities such as IPOs, mergers and equities trading.

Barclays Capital analyst Roger Freeman lowered his first-quarter earnings prediction for Morgan Stanley to 47 cents, down from 80 cents, dropping his prediction below Wall Street consensus.

“The biggest negative surprise has been the very weak equity businesses (commissions, trading and underwriting), although underwriting activity is building notable momentum,” Freeman wrote.

Freeman wasn’t the only analyst to cut his earnings estimates on the two companies. Keffe, Bruyette and Woods also dramatically lowered their earnings estimates for the two company noting a drop-off in equity capital markets and in mergers as well as IPOs. KBW cut their earnings estimate for Goldman Sachs first quarter to $3.33 and cut their stock’s price target to $195, down from $200. Morgan Stanley was also dropped to 56 cents, down from 78 cents.

KBW said that the two firms’ clients have been worried about European countries defaulting or missing payments on their sovereign debt.

On a brighter note, the two companies’s fixed income, currency and commodities revenues appear to remain strong. Freeman is predicting an EPS bump of 48 cents on this type of trading activity for Goldman Sachs, but that Morgan Stanley may take several quarters to benefit from the trend.

Morgan Stanley has not announced a second quarter earnings date, but Goldman Sachs is expected to release first quarter earnings on April 20^th.