Japanese banking giant Nomura believes the market is overestimating the profit potential for investment banking in the current economic environment and will be badly disappointed when Goldman Sachs (NYSE:GS) reports earnings next month, a research note issued by the bank this morning shows.

In a bombshell research note that is making the rounds on Wall Street this morning, Glenn Schorr, the financial services sector analyst for Nomura, cut his estimate for Goldman's fourth-quarter earnings to $1 per share, half of his previous $2 prediction. Prior to his note, the consensus earnings estimate for what Goldman would report in the quarter ended December 11 was $2.31.

The note cited "the difficult trading backdrop, soft investment banking trends, [and] limited expense flexibility" among other factors that would impact profits in the investment banking trend, hence driving down Goldman's bottom lines, according to the Dow Jones Newswires.

"With the usually slower holiday season coming, we see little sign that activity will pick up as we close out 2011. We also expect 2012 activity levels to be impacted by the expected slowdown in Europe and remaining regulatory uncertainty," Schorr said in the note

Other earnings estimates, included those the Nomura analyst had previously issued for Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS), were also slashed.

In spite of the diminished expectations, the note still saw likely upside in the equity price of those large banks. The also newly-slashed target price for Goldman Sachs stock was set at $130, a premium of over 45 percent over levels that company's stock is currently trading at.

"We continue to believe the risk/reward to owning U.S. financials over the next 12 months is positive," Schorr said in the note.

Shares of Goldman Sachs were hovering just down to $87.75 during early-day trading in the New York Stock Exchange, dropping 2.61 percent from the previous day's closing price. Citigroup and Morgan Stanley were faring worse: prices for shares in those two companies were down more than 5 percent from the previous day's close, as the wider market went from relatively bouyant levels to an aggressive selloff mid-morning.