Investor caution and a hostile government are combining to hammer investment banking, which will cause a sharp drop in expected earnings for Goldman Sachs, banking analyst Dick Bove said Thursday.

Bove slashed his quarterly estimate for Goldman from $2.93 to $1.93 a share, which reflects a one-time charge that London has imposed on bank bonuses.

But the company's problems run deeper into both political and legal issues, particularly SEC charges that Goldman

GS loading...

Quote  |  Chart  |  News  |  Profile

[GS  Loading...      ()   ] deceived investors in a pool of subprime mortgage bonds.

In addition, government intrusion in the health care, banking and energy sectors are constricting cash flow and hurting the economy, Bove said in a note to clients.

"Investors have become fearsome once again and they have pulled back from investing," he said. "This is resulting in mechanical and rumor-driven trading dominating the markets. The resultant wild volatility is causing more uncertainty and more cutbacks in investing, in both the markets and the economy."

While Bove maintains a generally bullish view on big banks—he kept Goldman at a "buy" rating despite the drop in his earnings estimate—the move matches cutbacks he has instituted on other banks, including Bank of America

BAC loading...

Quote  |  Chart  |  News  |  Profile

[BAC  Loading...      ()   ] and a host of others.

"The factors that have led to my projection being so low are multiple in number," he wrote. "They stem from the view that the economy is slowing down and the uncertainty related to the economy increasing. The government seems to be furious at the private sector."

Bove's target is less than half the mean estimate of $4.10 and far below the high of $5.20 per share.