Goldman Sachs likes JPMorgan, but not Morgan Stanley
Goldman says JPM oversold, while MS faces challenges from weak capital markets, Moody's downgrade.
The Goldman Sachs Group Inc. raised its recommendation for JPMorgan Chase & Co. (JPM) but lowered it for Morgan Stanley (MS).
Goldman Sachs upgraded JPMorgan to a buy on its “Americas conviction list” of highly recommended stocks, while Morgan Stanley was removed from that list and lowered to neutral, the analysts wrote in a research note today.
JPMorgan has dropped more than 13% in New York trading since the bank said last month it had at least $2 billion in trading losses, a “drastic” decline when set against the bank’s total profitability, Goldman Sachs said. Stock buybacks, which were suspended after the loss, could be restarted later this year and boost shares of the company, according to Goldman Sachs analysts led by Richard Ramsden.
Earnings at Morgan Stanley will be limited by weak capital markets, and a credit-rating downgrade by Moody’s Investors Service last week may hurt the firm’s funding costs and market share in trading, the analysts wrote. Goldman Sachs cut its estimate for Morgan Stanley’s 2012 earnings per share to 56 cents from an earlier estimate of $1.04, and lowered estimates for 2013 and 2014.
“Both JPM and MS shares have underperformed the broader banking group this year, driven by real but different idiosyncratic concerns,” the analysts wrote. The balance of risk and potential return is better for JPMorgan shareholders, according to the note, because of “more near-term earnings and return visibility for JPM.”
JPMorgan is the biggest U.S. bank by assets and Morgan Stanley is No. 6. Goldman Sachs is the fifth largest.
Morgan Stanley has dropped 27% since Jan. 27, the last day of trading before Goldman Sachs added the firm to its conviction list of top recommendations.
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