Yesterday, Jefferies’ started JPMorgan (JPM) and Bank of America (BAC) with Buy ratings and Citigroup (C) at Neutral. Now it’s Nomura’s turn, as the Japanese investment bank launches coverage of those banks and adds Goldman Sachs (GS) and Morgan Stanley (MS) to boot.
Reuters Nomura’s Steven Chubak and Sharon Leung expect investors to be focused on three themes in 2014: capital requirements, the potential to increase return on equity and the ability to return capital to shareholders. They explain how that plays out for the big five:
Our analysis indicates that Citigroup and Bank of America are best prepared for a
tougher capital regime. Significant excess capital generation / payout potential and
higher "normalized" ROEs (i.e., returns on required capital) support our Buy ratings, and imply the potential for significant share upside [30% for Citigroup, 14% for Bank of America].
The outlook is less constructive for [Goldman Sachs, Morgan Stanley and JPMorgan], supporting our Neutral ratings. [Goldman Sachs] is adequately prepared to comply with capital rules under both risk- and leverage-based regimes, but tougher regulation (e.g., Volcker Rule, Title VII) will likely constrain revenue growth, with declines more pronounced in higher-margin businesses (e.g., Investing & Lending, FICC). For [JPMorgan Chase] and [Morgan Stanley], we see significant earnings potential in a normal operating environment, but both firms currently have significant capital shortfalls ([JPMorgan] under a risk-based regime, [Morgan Stanley] under leverage-based), which supports our Neutral stance. The impact of tougher leverage rules is most significant for [Morgan Stanley], as we believe the stock would be valued well above $40 under a risk-based capital regime.
Shares of Citigroup have gained 0.7% to $55.20, Bank of America has risen 1.4% to $16.81, Goldman Sachs has dropped 0.6% to $177.37, JPMorgan Chase has fallen 0.3% to $58.68 and Morgan Stanley has dipped 0.1% to $31.54.
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