JPMorgan thinks Goldman Sachs is better placed than Morgan Stanley now

If you're looking for a seat to ride the expected multiyear upturn in investment banking activity, JPMorgan suggests Goldman Sachs might be a good option.

Writing this week after Goldman reported its second quarter results, Kian Abouhossein and JPMorgan's other European banking equity research analysts, said that Goldman is their favourite US investment banking pick, above the likes of Morgan Stanley, and above universal banks like Citi and Bank of America. 

Abouhossein and his team are focused on choosing banks to invest in rather than to work for, and their calls are therefore based on predicted moves in banks' stock prices. Nonetheless, to the extent that bonuses are paid in stock and that a healthy stock price is a reflection of a healthy business, the JPMorgan research team's choice of Goldman looks auspicious. 

Abouhossein et al's preference for Goldman reflects their expectation that investment banking division revenues will increase 31% year-on-year in 2024, and Goldman's strong gearing to this rise. At Goldman, for example, investment banking fees accounted for nearly 14% of revenues in the second quarter, and combined banking and markets fees accounted for 64% of total revenues. At Morgan Stanley, the comparable figures were 11% and 46%.

JPMorgan's analysts don't provide updated forecasts for revenues by business line at Goldman. At Morgan Stanley, though, they think that investment banking division revenues will increase 31% this year, 7% next year, and 3% in 2026. 

Sometime soon, banks must surely decide they need more headcount to help with the upswing. Recruiters are optimistic, for 2025.

Although JPMorgan's analysts prefer Goldman to Morgan Stanley as the place to ride the banking upturn, they're not bullish on GS stock overall, and remain neutral on the grounds that Goldman stock is valued fairly. It's up nearly 43% in the past year.

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