Goldman Sachs added JPMorgan Chase & Co. to its America's conviction buy list, saying the U.S. bank's capital position and earnings power can offset its recent hedging loss of at least $2 billion.
Goldman downgraded Morgan Stanley to "neutral" from "buy," and removed the stock from its conviction buy list, saying earnings could be hurt by muted capital markets activity.
While Goldman sees value in Morgan Stanley's shares at current depressed levels, it expects better returns at JPMorgan.
The 15 percent decline in JPMorgan share price since the largest U.S. lender by assets announced trading losses at its chief investment office has been "drastic," given the unit's 5 percent average earnings per share contribution, Goldman said.
JPMorgan, which has temporarily halted its $15 billion share repurchase program, may also resume buybacks this year, lending further support to the stock, Goldman analysts said.
Goldman, however, cut its second-quarter earnings estimates for JPMorgan to 60 cents from 75 cents to reflect a quicker recognition of its trading losses.
The brokerage cut its price target on Morgan Stanley to $16 from $20.
In the long-term, Goldman said JP Morgan and Morgan Stanley offer meaningful return on equity.
Shares of JPMorgan closed at $35.32, while Morgan Stanley closed at $13.48 Monday on the New York Stock Exchange.
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