Goldman Sachs analyst Richard Ramsden upgraded JPMorgan and downgraded Morgan Stanley Tuesday, saying he sees different risks and rewards for the "Morgans."
THE OPINION: JPMorgan Chase & Co. and Morgan Stanley are both "bruised and battered" in Ramsden's opinion. The companies have underperformed the broader banking group this year, he said in a note to clients, but for very different reasons.
JPMorgan's shares are down since the company announced the unexpected $2 billion hedging loss. Whereas Morgan Stanley's shares are down since its 1st-quarter earnings and the downgrade by Moody's Investor Services, according to the analyst.
He sees value in both company's stock at their current lower-than-normal prices, as they could pay off in the long run.
However, he sees better potential in JPMorgan. Ramsden upgraded the New York-based bank to a conviction list "Buy," versus its prior "Buy" rating. He said recent statements by JPMorgan executives regarding its big trading losses in London have started to remove some of the fear about the company's hedging and other operational risks.
CEO Jamie Dimon has said JPMorgan will be "solidly profitable" for the second quarter, Ramsden noted. "'Solidly profitable' obviously encompasses a wide range of outcomes, but we believe this eliminates the high end of the possible loss range we have heard from investors," the analyst said, adding that he expects about $6 billion in losses from the trading debacle. In addition, he said that recent Congressional hearings seemed to indicate that new regulations resulting from the trading loss will be less than feared.
Meanwhile, Ramsden downgraded Morgan Stanley to "Neutral" from a conviction list "Buy" rating. He said the investment bank's restrained capital markets activity is a drag on the company. Additionally, he said it was too soon to assess the full impact of the recent downgrade of Morgan Stanley by Moody's Investors Service. He lowered his price target on the stock to $16 from $20.
THE STOCKS: Shares of JPMorgan shares rose 42 cents to close Tuesday trading at $35.74. Its shares have traded between $27.85 and $46.49 in the past 52 weeks.
Morgan Stanley's shares rose 3 cents to end at $13.51. The stock has traded between $11.58 and $24.46 in the past 52 weeks.
