Thursday, January 13, 2011

JPMorgan (NYSE:JPM) Downgrades Goldman (NYSE:GS), Likes Morgan Stanley (NYSE:MS) Better

The European Equity Research team of JPMorgan (NYSE:JPM) downgraded Goldman Sachs (NYSE:GS), saying the decision was based solely on valuation. Now they like Morgan Stanley (NYSE:MS) as their top choice in the U.S.

About Goldman, JPMorgan said it "has most of the headwinds in context of Europe-US regulatory arbitrage."

In the order of preference, JPMorgan now likes UBS (NYSE: UBS), Credit Suisse (NYSE:CS), Morgan Stanley (MS), BNP Paribas, Socgen, Barclays (NYSE:BCS), Goldman Sachs (GS) and Deutsche Bank (NYSE:DB).

JPMorgan said risk-reward now favors the the European IBs as, 1) US IBs outperforming European IB peers by 16%, 2) valuation gap widened with Swiss IBs now close to 0.7x ex WM tangible BV 2012E and BARC at 0.7x, 3) US IBs capital re-leveraging now priced in, based on releveraged PE at 8.8x 2012E.

JP Morgan downgraded Goldman Sachs (GS) from "Overweight" to "Neutral." Goldman closed Wednesday at $17.67, up $2.31, or 1.36 percent. Morgan Stanley closed at $28.71, up $0.75, or 2.68 percent.

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