Lower trading fees and other challenges could be a drag on large banks’ first quarter earnings, and while Jefferies analyst Ken Usdin is still bullish on the sector in the long-term, his EPS estimates are below consensus across the board and he thinks that investors are simply bracing for a disappointing 1Q14.

“With a few weeks left in 1Q14, the EPS set-up for Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM) looks fairly challenging,” writes Usdin in a March 17 report. He estimates that trading fees are down as much as 20% from last year, and corporate/consumer activity isn’t growing fast enough to make up the difference.

Usdin expects consensus to fall

He had already reduced his estimate for JPMorgan Chase & Co. (NYSE:JPM) to $1.34 following the bank’s investor day at the end of February, and has now updated his targets for Citigroup Inc. (NYSE:C) to $1.14 from $1.45 and Bank of America Corp (NYSE:BAC) to $0.25 from $0.28, putting him 7%, 8% and 14% below consensus respectively. He expects the consensus to come to him as we get closer to earnings and other analysts update their estimates, but Usdin also thinks that some investors may simply be looking past recent headwinds.

“It seems that investors are willing to look past sluggish 1Q results as long as the path to ’15 EPS is achievable,” he writes.

Bank of America and JPMorgan Still look better than Citigroup

Even after reducing his 1Q EPS estimates, Usdin rates both Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) as Buys, with $20 and $66 price targets respectively (trading at $17 and $57). He expects to see sequential growth in trading fees, despite being down year-on-year, but most other major fees (mortgage, credit card, investment banking fees) will be down from 4Q13. Net interest margin may remain flat at JP Morgan, but net interest income should drop at both banks because of the lower day count.

BAC EPS revisions 0314

JPM EPS revisions 0314

Citigroup’s trading fees unstable

Usdin rates Citigroup Inc. (NYSE:C) as Hold with a $56 price target, though the overall picture is similar. He see trading fees growing sequentially but falling 17% year-on-year, offsetting weak fee growth in other areas. Net interest margins should be safe, but the lower day count again will cause net interest income to fall relative to last quarter. At just 0.86x tangible book, Citi isn’t really overvalued (currently trading at $48), but he sees the potential for more downward revisions in the future.

Citigroup EPS revisions 0314