Goldman Sachs and Morgan Stanley are poised for stronger results next year compared to other large-cap U.S. banks as dealmaking on Wall Street picks up and asset management businesses gain momentum, HSBC said on Thursday.
The brokerage said that Goldman Sachs and Morgan Stanley should post high single-digit to low double-digit revenue growth in 2024 and sizable earnings growth in 2024 and 2025 after being weighted from a decade-long low in investment banking.
Lead analyst Saul Martinez believes a "bifurcation" is emerging in revenue forecast between traditional and capital markets-focused banks and picks Goldman Sachs as the brokerage's preferred name in its coverage.
"We see deal activity picking up: even in a sluggish economic growth environment, greater visibility regarding the direction of economic growth, interest rates, and inflation should trigger more equity and debt issuance and M&A activity," Martinez said.
He added that fixed income and equity sales and trading revenues have been lower than the heights they reached in 2020-2022 but they have been resilient and remain above 2017-2019 levels.
Investment banks have been hit by a plunge in dealmaking activity as torrid markets and aggressive rate hikes by the Federal Reserve have forced lenders to pull back from financing large deals.
Although rising interest rates have helped Bank of America, JPMorgan Chase and Wells Fargo in reaping windfalls from charging clients higher interest rates, they have started to stagnate loan growth, putting pressure on higher deposit costs.
HSBC expects JPMorgan, Bank of America and Wells Fargo to see net interest income decline along with higher credit costs but said Bank of America will fare better.
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