Wall Street’s big bank run puts Europe on analysts’ radar
HSBC lifted forecasts for Goldman Sachs and Morgan Stanley, while JPMorgan says UBS and Barclays could top expectations.
By Frankie Delgado · News Reporter
3 min read
Goldman Sachs and Morgan Stanley have turned a hot quarter into a fresh round of analyst upgrades, and the glow is now spilling across the Atlantic.
HSBC’s U.S. financial research team, led by Saul Martinez, raised its earnings forecasts for both Wall Street banks in a client note sent late Tuesday, according to MarketWatch. The move followed strong second-quarter results that showed strength in equities, investment banking and wealth management.
Goldman got the bigger lift from HSBC. Martinez’s team raised its earnings-per-share estimates for the bank by as much as 25%, increased its price target to $995 from $834, and moved its rating to hold from reduce.
HSBC said Goldman was trading at about 13 times expected 2027 earnings after its second-quarter report, down from about 15 times before the release. That cheaper multiple helped support the rating change, according to the note.
Morgan Stanley also received a forecast bump from HSBC, though its rating stayed at hold. HSBC lifted its price target on the stock to $215 from $190.
Trading desks did the heavy lifting
The better outlooks were driven partly by strong equity-trading results at both banks, according to HSBC. The firm also pointed to encouraging signals in investment banking and wealth management, two areas investors have been watching closely as deal activity and client demand recover.
Returns on equity at Goldman and Morgan Stanley were around the 20% mark, according to the analyst commentary cited by MarketWatch.
JPMorgan’s Kian Abouhossein, co-head of global bank research, also struck an upbeat tone in a Wednesday note on global investment banks. He said U.S. investment banks’ second-quarter results came in well ahead of his already positive expectations.
Abouhossein said the sector’s higher price-to-earnings multiples have been supported by repeated earnings upgrades. JPMorgan’s report said revenue across the group rose 38% from a year earlier.
Europe could be next in line
JPMorgan sees some of the same tailwinds reaching European banks, even if the setup is not identical. Abouhossein said European lenders may get less of a boost from very large initial public offerings and artificial-intelligence capital spending than their U.S. peers.
Lower valuations may already reflect that gap. JPMorgan said UBS trades at about 12 times earnings, while Deutsche Bank and Barclays trade at about 8 times.
Abouhossein also said the strong Asian-market performance reported by U.S. banks may point to similar momentum for HSBC and Standard Chartered. Even so, he warned that investors may have already priced in much of the good news after seeing the U.S. results.
JPMorgan still sees room for Barclays and UBS to beat consensus expectations when they report.
Abouhossein also flagged longer-term changes in investment banking, saying the business is shifting away from a model built heavily on balance sheets and inventory toward one more focused on execution. He pointed to technology, blockchain-based faster settlement and artificial intelligence as factors that could lift efficiency and productivity.
The EURO STOXX Banks Index has risen since Goldman reported results, according to MarketWatch, while Goldman and Morgan Stanley shares have slipped after their own earnings releases.
This story draws on original reporting from MarketWatch.