HSBC analyst Saul Martinez recently downgraded several major US banks, citing valuation concerns as the primary reason. The firm changed its recommendations on JPMorgan Chase (JPM) and Goldman Sachs (GS) from “hold” to “reduce,” and Bank of America’s rating dropped from “buy” to “hold.”
Why the Downgrades?
Martinez emphasized that the downgrades weren’t due to worries about the banks’ underlying performance. He believes their net interest income is healthy and growing. However, he feels the current market prices don’t reflect potential downsides. He specifically pointed to the impact of stock buybacks, arguing that they’re diluting value at inflated prices.
JPMorgan Chase: The Numbers Don’t Add Up
Martinez was particularly critical of JPMorgan’s valuation. He stated that, based on metrics like price-to-tangible book value and return on tangible common equity (ROTC), the stock is simply overpriced. He noted that JPMorgan’s current valuation is exceptionally high, making it a risky investment at this point.
Goldman Sachs: Riding a Wave of Good News?
The downgrade of Goldman Sachs, Martinez explained, goes against the current positive sentiment surrounding the investment banking sector. While acknowledging the industry’s current strength, he believes the positive outlook is already fully priced into Goldman Sachs’ stock. He warned that if the market cools down or investment banking activity slows, there’s a greater chance of disappointment than significant upside.
In short: HSBC believes the market is overestimating the value of JPMorgan and Goldman Sachs, failing to account for potential future risks. They recommend investors reconsider their positions in these companies.
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