Citing their strong capital positions, analysts led by Kian Abouhossein, said they expect both of these banks to repurchase up to 15% of shares outstanding within the next three years.
Goldman Sachs Group Inc, Morgan Stanley See Value in Buyback
Buying back when shares trade below their book value is the right strategy, the analyst said, before upgrading both of the stocks to “overweight.” Goldman Sachs and Morgan Stanley rallied in Tuesday trading.
JPMorgan now projects Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley to buy back shares worth $15 billion and $10.5 billion respectively, of their current market caps by the end of 2018.
The brokerage however isn’t too upbeat about the current year outlook for global investment banks, saying the lower numbers of deals and challenging trading environment may hurt earnings. The analysts slashed their 2016 earnings projection for investment banks by 20%, while revenue is estimated to decline by 21%.
“We believe the Q1 (investment bank) revenue environment has started on a challenging note with limited issuance activity and widening credit spreads,” the analysts said. However, for 2017, JPM expects global investment banking revenues recover and increase by 7%.
As part of their weak forecast for global investment banks, JPM cut shares of Credit Suisse to “neutral” from “overweight.” Analysts said they expect credit trading revenue to remain subdued amid the widening of spreads. Surprisingly, Deutsche Bank was named as the top pick among investment banks. Abouhossein noted that the extreme investor pessimism towards the German lender was overdone.
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No Bottom in Sight for Goldman Sachs Group Inc Stock
Goldman Sachs Group Inc (NYSE:GS) stock has been in a down trend since August 2015, when it completed the pattern of a lower peak and a lower trough. Shares have fallen close to 40% since then. Yesterday’s 2% jump may excite some traders. But the bottom line is that it was just a relief rally in an otherwise strong bear trend. Traders should only look to short the stock. And the bounce back provides a good place to do that.
As far as the medium term outlook for Goldman Sachs goes, the stock has been breaking one support level after another. The most recent breach being the zone around $150. And given the way broader markets are positioned, one won’t be surprised if the stock retests the 2012 lows of around $90 in the coming few months.