GS, MS, BAC: Bank stocks to watch as investment banking revenue declines


Goldman Sachs, Inc. (NYSE: GS), Morgan Stanley (NYSE: MS) and Bank of America Corporation (NYSE: BAC) are the three U.S. capital market investment banks that have suffered from a decline in corporate activity, such as mergers and initial public offerings (IPOs), since the start of 2022. These complex transactions, which require investment banking services, declined due to volatility in the stock market caused by economic uncertainties, geopolitical issues and tighter monetary policies.

For potential investors, a discussion of these investment bankers is provided below. Additionally, a chart, designed using TipRanks Stock Comparison Toolis given for better understanding.

The Goldman Sachs Group, Inc. (NYSE: GS)

The New York-based financial company offers retail banking, investment management, securities and investment banking services. Its clientele includes governments, corporations, individuals and financial institutions. The company’s market cap is $117.66 billion.

In the second quarter of 2022, Goldman Sachs Investment Banking segment revenue was down 41% year-over-year due to a 5% drop in financial advisory, an 89% drop in underwriting shares and a 52% drop in debt underwriting sales. . Overall, Investment Banking revenue represented 18% of total company revenue in the quarter, compared to 19% in the first quarter of 2022.

The company’s Chairman and CEO, David Solomon, said: Despite heightened volatility and uncertainty, I remain confident in our ability to navigate the environment, dynamically manage our resources and generate long-term accretive returns for shareholders.

Is GS Stock a good buy?

Despite the obstacles faced, Goldman Sachs has a strong outlook, which increases its investment appeal. In addition, the company’s commitment to generously rewarding its shareholders by paying dividends and buying back shares works in its favour. In July, Goldman Sachs increased its quarterly dividend rate by 25%.

On TipRanks, analysts are cautious but bullish on the outlook for Goldman Sachs, which warrants a Moderate Buy consensus rating based on 14 buys, four holds and one sell. GS’s average price target is $392.75, which represents a potential upside of 14.64% from the current level.

According to TipRanks, hedge funds are very positive on the stock, as they have purchased 513,400 GS shares in the last quarter. On the contrary, the sentiment of investors is negative towards the title. In particular, the number of portfolios exposed to GS shares decreased by 1.2% in the last 30 days.

Morgan Stanley (NYSE:MS)

The $154.77 billion financial services company has expertise in providing investment banking, securities, investment management and wealth management services. Individuals, businesses and governments are the company’s customers.

Morgan Stanley’s investment banking revenue was down 55% year-on-year in the second quarter of 2022. While advisory revenue was down 54.9%, equity and income underwriting revenue fixed decreased by 9.9% and 86.2%, respectively.

The company’s chairman and chief executive, James P. Gorman, said growth in underwriting revenue (fixed income and equities) partially offset weak investment banking revenue.

“We continue to attract positive flows across our wealth management business, and investment management continues to benefit from its diversification,” added Gorman.

Is Morgan Stanley a good long-term investment option?

With continued strength in its wealth management and investment management businesses, the company could be a solid investment option for long-term investors. Additionally, Morgan Stanley’s dividend yield is 3.21%.

Morgan Stanley has a moderate buy consensus rating, which is based on 12 buys, seven holds and one sell. MS’s average price prediction of $90.61 suggests an upside potential of 0.51% from the current level.

Right now, hedge funds and retail investors are turning away from the stock. While hedge funds sold 1.3 million MS shares last quarterretail investors decreased their exposure by 0.6% over the past 30 days.

Bank of America Corporation (NYSE: BAC)

The financial company provides banking, wealth management, risk management, investment banking and other services. With a market capitalization of $283.4 billion, Bank of America customers include businesses, individuals, institutions and governments.

In the second quarter of 2022, revenue at Morgan Stanley’s investment bank was down 47% year-on-year. Notably, investment banking revenue fell 41% for the Global Banking segment and 52% for the Global Markets segment.

The company’s chief financial officer, Alastair Borthwick, said: “We believe the generation of profits over the next 18 months will provide sufficient capital to support growth, pay dividends, repurchase shares and continue to invest in our people. , our platforms and our communities as we grow into new regulatory capital requirements.

Is BAC Stock a buy or a sell?

Given the participation of analysts and hedge funds tracked by TipRanks, BAC shares could be an attractive investment option for potential investors.

Analysts have a moderate buy consensus rating on BAC, which is based on 12 buys and five holds. BAC’s average price target of $42.56 reflects upside potential of 20.67% from the current level. Hedge funds are bullish on the stock and bought 1.7 million shares in the last three months.

However, retail investors are neutral on the stock as the the number of portfolios with investments in BAC shares fell by 0.4% in the last seven days.

Final remarks

Goldman Sachs, Morgan Stanley and Bank of America face near-term headwinds, triggered by a drop in investment banking earnings. Despite this, these companies appear well positioned for long-term growth. A price performance chart of these companies is provided below.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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