Why Did JPMorgan Just Upgrade Goldman Sachs?


The most notable “call” this morning is JPMorgan’s upgrade of Goldman Sachs from NEUTRAL to BUY.

Goldman, of course, has been decimated by the general selloff in financials, and specific negative newsflow.

This morning’s call, by analyst Kian Abouhossen, rests on a few points.

He writes: “We had a group meeting with GS Vice chairman and Co-CEO of GS Intl. Michael Sherwood, and conclude the firm’s strategy is clear and recent negative newsflow impact on franchise over-discounted. Based on our own analysis we see material re-leveraging potential.”

As for the company’s path to new growth/releveraging:

  • The company already has $4.6 billion in excess capital.
  • What’s more, it can wind down its investing & lending division, which currenctly consumes $30BN of capital.
  • Meanwhile, there’s an internal paradigm shift going on, as the company totally focuses towards capturing more client cash flow.

Says Abouhossein: “Based on GS’ liquid execution track record, GS should be a winner in a more ‘cash equity’ like FICC world. GS should also catch-up in EM. We also expect S/Hs to be rewarded with capital re-leverage.”

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