Goldman leads two downgrades amid jitters among investment banks after share price gains

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Goldman Sachs Group Inc. drew two separate analyst downgrades on Tuesday as Wall Street rebuffed a summer rally in its stock price.

The CFRA cut Goldman to not buy, while Odeon Capital Group now rates Goldman as a sell.

Both analysts cited weakness in the investment banking sector, with the tap mainly turned off on capital-raising deals and initial public offerings.

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Goldman shares fell 1.8% on Tuesday, while the Dow Jones Industrial Average DJIA,
-0.32%
decreased by 0.6%. Goldman and JPMorgan Chase & Co. JPM,
-0.93%
are the two components of the 30-stock index

The bear calls Goldman Sachs GS,
-0.18%
come after the stock rose around 18% from its mid-July lows, although the stock price remains in the red for 2022. The stock is now trading at around $326 per month. stock after falling below $282 in mid-July.

“We don’t see any positive catalysts ahead,” said CFRA analyst Kenneth Leon.

Leon remains less convinced that the investment banking business will rebound in the fourth quarter, despite an active deal pipeline. Equity subscription has fallen by 65% ​​this year, with no signs of improvement, and new debt issuance has also fallen, he noted.

“CEO confidence has declined and is a leading indicator for gauging upcoming M&A and capital raising as 2023 is expected to see a weakening global economy,” Leon said.

He cut his price target for Goldman Sachs to $355 per share from $370 per share and cut his 2022 earnings target to $34.65 per share from $37.00 per share, relative to the consensus outlook. of Wall Street of 34.81 dollars per share.

On the upside, Goldman could see positive gains in trading equities and fixed income amid market volatility, Leon said.

Odeon Capital analyst Richard Bove said weak investment banking earnings are weighing on big banks as he cut ratings for Goldman Sachs and Morgan Stanley MS,
-0.66%
sell pending. It also reduced its rating on Citigroup Inc. C,
-1.40%
keep buying.

“These companies face serious problems as business dries up,” Bove said. “Furthermore, the actions taken by the Federal Reserve to reduce its balance sheet suggest that the current difficult times will extend well into 2023.”

All major investment banking businesses are down except investment-grade bonds and companies with the highest profit margins are down the most, he said.

Comparing July and August figures to year-ago levels, US high-yield issuance was down 81% and Asia ex-Japan deals were down 51%; US leveraged loans are down 71% and EMEA leveraged loans are down 65%.

At last check, Goldman shares are down 15.1% for 2022, compared to an 18.1% loss for the S&P 500 SPX,
-0.75%,
a 14.3% drop in the Dow Jones Industrial Average DJIA,
-0.32%
and a 16.4% loss by the Financial Select SPDR ETF XLF,
-0.45%.

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