Top 10 Investment Banks Under the Spotlight

Includes: BAC, BCS, C, CS, DB, GS, JPM, MS, NMR, UBS
by: Alacra Pulse Check Blog

The Financial Times Tuesday looks at how well the top 10 global investment banks are adapting to the changing regulatory and economic landscape and tags JPMorgan Chase (NYSE:JPM) as “the institution to beat in the investment banking stakes.”

Analysts seems to agree, according to a Dec 13 Alacra Pulse Prognosis. Of the 14 analysts tracked by Alacra Pulse, 13 had a positive rating on JPMorgan Chase and one was neutral. The median price target for JPMorgan was $52, or 26% higher than Tuesday’s closing price of $41.00.

Citigroup has since trimmed its target on JPM to $48 from $50 but retains a Buy rating. JPMorgan’s announced purchase of Lehman’s former office building in London’s Canary Wharf district was positioned by the bank as a sign of its ambitions in Europe.

Goldman Sachs (NYSE:GS) has been in the spotlight for the wrong reasons this year but remains confident in its ability to adapt. Again, analysts agree. In a Nov 30 Prognosis, the median target price for Goldman was $190, 13% above Tuesday’s close of $168.23.

An analyst at Atlantic Equities downgraded shares of Goldman from Overweight to Neutral last week, but kept a $170 target. But of the tracked analysts none have a negative rating on Goldman: 16 are positive and three neutral.

Dealbook reports that CEO Lloyd Blankfein sees investment banking as having the most potential next year, according to Glenn Schorr, an analyst with Nomura. He found that management was feeling good about how 2011 was shaping up given robust M&A and equity underwriting pipelines.

Citigroup’s (NYSE:C) large global network arguably remains its strongest asset, which it hopes to use to restore its lost glory.

Of the 13 analysts featured in our Nov 15 Prognosis, six were positive, six were neutral and one was negative. The median target price for Citigroup was $5, or 5% above Tuesday’s close of $4.74.

Since then, ISI Group’s Ed Najarian upgraded Citi from Hold to Buy and raised his target to $5.50 from $5, citing valuation in addition to several upcoming catalysts.

With Citigroup having returned to profitability and posting a cleaner credit picture, Opppenheimer’s Chris Kotowski sees the stock as a value play, with the potential to reach $5 a share.

Bank of America’s (NYSE:BAC) acquisition of Merrill Lynch has made it a player in the investment banking world, though it still faces many challenges, notably dealing with troubled mortgages and botched foreclosures.

Still analysts remain bullish on the bank. In our Oct 25 Prognosis the median price target for Bank of America was $19, or 46% higher than Tuesday’s closing price of $12.98.

Citi this week raised quarterly EPS estimates for BAC. The firm maintains a Buy rating and $18 price target. Analysts have not not changed their underlying thesis on BAC since as a result of “foreclosuregate,” though Keefe Bruyette & Woods last week downgraded the stock to Market Weight from Outperform.

But banking analyst Dick Bove of Rochdale Securities last week told TheStreet the stock could reach $32 in three years. His 12-month price target is $19.25.

Morgan Stanley (NYSE:MS) remains in a transition period, a fact reflected in more guarded analyst opinions. The consensus estimate for current quarter earnings due out in early January is 49 cents a share, but Barclays Capital earlier this week cut its estimate to just 2c from 25c. The firm has a $34 target and Equal Weight rating. Goldman last week cut its estimate from to 35c from 55c. The firm maintains a Neutral rating and $30 price target.

Calling Morgan Stanley “a work in progress” Bove in October cut his target to $32 from $35.

Outside the US, Barclays (NYSE:BCS) benefited from picking up Lehman Bros’ US investment banking operations, but remains vulnerable to troubled Eurozone debt and the possibility of a forced breakup of big banks in the UK.

Citigroup analyst Leigh Goodwin Tuesday cut the stock’s target price to 294 pence a share from 350 pence, with a Hold rating. Barclays closed Tuesday at 268.35 pence.

“Barclays is not faced with a shortage of capital, but a shortage of good uses for its capital,” wrote Goodwin. “Barclays has too many assets and business lines that generate a poor return on newly calibrated capital requirements.

Credit Suisse (NYSE:CS) emerged from the financial crisis relatively unscathed, and is banking on its conservative approach prevailing. Still both Nomura and Goldman Sachs have downgraded the Swiss bank to Neutral from Buy within the last two weeks.

“We downgrade Credit Suisse to Neutral following a revision of our valuation model and steady-state returns under the new regulatory proposal; our preferred European bank with exposure to capital markets is BNP Paribas, which is on our Conviction Buy List,” Goldman wrote.

Analysts at Collins Stewart last month initiated coverage of Credit Suisse with a Buy rating.

UBS (NYSE:UBS), on the other hand, took a beating during the crisis and is still struggling to recover.

“In equities, they’re massively off what was a leadership position before the crisis,” said Christopher Wheeler, an analyst with Mediobanca SpA in London fter UBS reported disappointing results last month.

“They have to start taking risk again or to pay less,” said JPMorgan Chase & Co. analyst Kian Abouhossein, whose recommendations on UBS produced the second-highest total returns over the past year, according to data compiled by Bloomberg. Still, Abouhossein has an Overweight rating on UBS.

Deutsche Bank’s (NYSE:DB) investment banking operations have come back from a near death experience and JPMorgan early this month upgraded the German bank to Neutral.

FTAlphaville in October compared Deutsche Bank favorably to its Swiss rivals, noting the performance of its investment banking operations is broadly in line with that of its global peer group, according to Nomura analyst Jon Peace.

Nomura (NYSE:NMR) has joined the ranks of top investment banks after picking up most of Lehman’s Asian and European operations. Its arrival may soon be confirmed by the Japanese firm being defined as a “global systemically important financial institution,” or SIFI, under new international rules.

(Sources: Alacra Pulse, Financial Times,, Dealbook, TheStreet, StreetInsider, CNBC, Investor’s Business Daily, Bloomberg Businessweek, Benzinga, FTAlphaville.)