2 Bank Stocks Downgraded by Atlantic Equities Today

By Senad Karaahmetovic

Atlantic Equities analysts downgraded two bank stocks today ahead of the Q3 earnings season that starts next week. The analysts cut ratings for Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), citing three key factors: declining investment banking activity, falling equity markets, and concern that trading estimates remain too optimistic.

Goldman is downgraded to Underweight from Neutral while Morgan Stanley’s new rating at Atlantic is Neutral (down from Overweight). New price targets for these two banking giants are $290 and $85 per share, down from $330 and $95, respectively.

“Combined, IB and trading account for c60% of revenues for Goldman Sachs and c50% for Morgan Stanley compared to c30% for the money-centre banks. In the financial crisis, a surge in recapitalisations boosted ECM and DCM activity, but many firms repaired their balance sheets during the pandemic, lowering upside risk for the IBs. FICC and Equities trading are also coming off two strong years while falling equity markets create obvious headwinds for wealth and asset management divisions,” the analysts explained in a client note.

They also noted that banks tend to underperform early in a recession before a strong outperformance period comes in the early stage of recovery.

“Although we are downgrading GS and MS, we retain our Overweight recommendations on BAC, WFC and FRC due to a combination of high interest rate sensitivity, strong expense management (leading to operating leverage), high quality credit profiles and reasonable valuations,” they concluded.

Shares of Goldman Sachs and Morgan Stanley both traded 1.5% lower in pre-open Wednesday.