The HSBC analysts said their estimates for Goldman Sachs and Morgan Stanley already factor in around a 30% increase in investment banking fees from 2024 levels. — Bloomberg
NEW YORK: Goldman Sachs Group Inc and Morgan Stanley shares are showing an “unattractive risk reward profile” in the wake of the recent bank rally, HSBC analysts say, adding that investors should be wary of arguments that an investment banking “super cycle” will drive shares much higher.
The analysts led by Saul Martinez said that while investment banking fees likely will increase, their estimates for Goldman Sachs and Morgan Stanley already factor in around a 30% increase from 2024 levels.
“We think market expectations are much higher than they have been, leaving room for disappointment,” Martinez said in a note, downgrading both banks to “hold” from “outperform”.
Donald Trump’s victory in the US presidential elections saw bank stocks rip as investors expect Trump’s policies, including tax cuts and lighter regulation, to futher drive economic growth and boost bank stocks.
Morgan Stanley and Goldman Sachs are up 13% and 14%, respectively, since Nov 6, when the KBW Bank Index surged almost 10% in the day after the election.
While some analysts are bullish, including Wells Fargo & Co’s Mike Mayo, who called the catalyst a “watershed moment” and who sees the chance for a “super cycle” in capital markets, Martinez is hardly alone in his hesitancy.
Recently, Oppenheimer analysts downgraded JPMorgan Chase & Co to “perform” from “outperform” following the rally, warning that the bank guided to lower net interest income.
The index, which tracks the top 34 US banks, including names like Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs and Morgan Stanley, is on track for its best year since 1997. — Bloomberg
