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Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC) are scheduled to announce quarterly results on October 15, while Morgan Stanley (MS) is expected to report earnings the following day. What to watch for:
END OF UNDERPERFORMANCE: Earlier this month, HSBC upgraded Morgan Stanley to Buy from Hold with a price target of $118, up from $103. The firm believes the stock’s “long period of underperformance could be ending.” Morgan Stanley’s “leading” investment banking and wealth management franchises should continue benefiting from a healthy market backdrop, boosting financial performance, the firm tells investors in a research note. HSBC says concerns about net interest income seem overdone in light of the bank’s “healthy” fee-based asset flows and accelerating management fee growth in wealth management.
LOAN GROWTH REMAINS ELUSIVE: JPMorgan raised the firm’s price target on Neutral-rated Citi and Overweight-rated Bank of America to $71.50 and $47 from $65.50 and $43, respectively, as part of a Q3 earnings preview for the large cap banks. Loan growth “remains elusive” for banks and the slowdown in rate cuts following a strong jobs report will further push back the expected recovery in these loans, the firm said a week ago. JPMorgan further stated that bank stocks “have been choppy recently” with regional banks outperforming money centers since the Q2 earnings in anticipation of greater benefit to them from sizable rate cuts over the next 18-24 months. In the near term into earnings, the firm prefers the money centers.Earlier this month, Goldman Sachs lowered the firm’s price target on Bank of America to $48 from $50, but kept a Buy rating on the shares as part of a broader research note previewing Q3 results for America’s Banks. The firm also raised Morgan Stanley’s price target to $106 from $105, keeping a Neutral rating on the shares. Goldman believes that net interest incomes will continue to fall once again in Q3 by 4% on average, given lagged deposit repricing and ongoing, tepid loan growth, more than outweighing fixed asset repricing, and net interest income that is only expected to inflect in Q2 of 2025. Concern around charge-offs, in particular credit card and commercial real estate, has moderated in recent months, but reserve builds for banks could continue, the firm added. For Morgan Stanley, Goldman Sachs sees upside risks coming from higher wealth management margins as well as better capital markets performance.
HEALTHY REVENUE, EARNINGS: Ahead of quarterly results, JMP Securities raised the firm’s price target on Goldman Sachs to $550 from $525 and kept an Outperform rating on the shares. Business conditions are inflecting positively for the vast majority of Financials and FinTech companies, and the firm anticipates healthy revenue and earnings growth in the coming years, albeit not on a smooth line. JMP recommends being the most selective and tactical when looking at firms leveraged to a Capital Markets recovery where it would argue sentiment is most constructive within Financials, including Investment Banks and Alternative Asset Managers, and says it has a lot of conviction in the FinTech space from here. The firm sees the best risk/reward in Goldman Sachs in the large cap space.
APPLE CREDIT CARD: Goldman Sachs CEO David Solomon said last month that the bank will take a $400M hit this quarter due to its floundering consumer business, The Wall Street Journal’s AnnaMaria Andriotis reported, adding that Goldman expects to incur the loss on the eventual sale of its General Motors (GM) credit card business and a smaller, unrelated business. Goldman has been in talks for months with GM and Barclays (BCS) about transferring the carmaker’s credit card business to Barclays, but Barclays has been unwilling to pay the price Goldman originally expected, in large part because of high charge-off rates in the program, according to people familiar with the matter. People familiar with the talks say Goldman will likely receive less than the outstanding balances after having paid a premium to buy them. Goldman is also still looking to exit its partnership with Apple (AAPL), where credit card balances total around $17B, and the bank could face even bigger losses when it offloads the Apple partnership than the losses associated with the GM sale to Barclays.More By This Author:Another Trio Of Biotech IPOs Made Friday Debut
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