Here Is What Wall St. Experts Are Saying About These Banks Ahead Of Earnings

Morgan Stanley (MS) and Bank of America (BAC) are scheduled to announce quarterly results on July 18, while Goldman Sachs (GS) is expected to report earnings on July 19. What to watch for:

WORST EARNINGS IN YEARS FOR GS: Goldman Sachs could report its worst earnings this week in years, with writedowns on GreenSky likely exceeding $2B and ROE in the low single digits, Semafor's Liz Hoffman reports, citing people familiar with the matter. Goldman's quarterly report is likely to be "far worse" than rivals', according to the report.

STOCK COULD RALLY: Odeon Capital upgraded Goldman Sachs last week to Buy from Hold with a $355.75 price target. The company has warned that "this will not be a good quarter" and analysts have taken down the consensus quarterly number by over 40% as "there seems to be a competition among analysts as to who can justify the lowest earnings estimate for Goldman Sachs' second quarter." However, Odeon notes that shares are still selling at a 2% premium to book value when many banks are selling at discounts to net worth as investors are now looking beyond the coming quarterly results, which the firm calls "the correct way to assess this company." The firm adds that it sees "a strong possibility that the company's common stock will rally on the 19th when its earnings are produced."

Odeon Capital also upgraded Morgan Stanley to Buy from Hold with a $94 price target. Since the beginning of June, the Federal Reserve has not impacted the financial system as much as the firm had thought it would, the equity markets have risen by 27% from their lows and the investment banking business has recovered sharply, the firm tells investors. However, the failure to name a successor to James Gorman now that he has indicated that he will leave the CEO position "remains bad management practice," Odeon said.

MOVING TO THE SIDELINES: Meanwhile, Societe Generale downgraded four big bank stocks - Citi (C), Goldman Sachs, Deutsche Bank (DB), and JPMorgan (JPM) - all to Hold from Buy ahead of the publication of the rules for Basel 4, or B4, that are due in the coming weeks. Most European banks have guided to limited impact from B4, but Deutsche "stands out as an outlier," the firm tells investors. Meanwhile, for U.S. banks, B4 regulations "could drive much higher minimum capital requirements," Societe Generale argues. The firm downgraded Citi, Goldman and Deustche on a likely impairment of their ability to return capital compared to peers, together with other stock-specific reasons, while noting that its downgrade of JPMorgan was being made "mainly on valuation grounds." Societe Generale has a $160 price target on shares of JPMorgan, a $50 target for Citi, a $350 target on Goldman and an EUR 9.50 target on shares of Deutsche Bank.

TARGET CUT: On Wednesday, JPMorgan lowered the firm's price target on Goldman Sachs to $398 from $415 and keeps an Overweight rating on the shares ahead of the Q2 results. The firm expects the focus in the quarter for U.S. investment banks will be on the outlook for fees, planned cost measures in the event of continued revenue weakness and the outlook for capital returns with Basel 3 finalization uncertainty. Further, JPMorgan prefers European investment banks over the U.S.

JMP Securities also lowered the firm's price target on Goldman Sachs to $450 from $470, while keeping an Outperform rating on the shares. Banks have been underperformers in recent months with some overhangs persisting, but "green shoots" are starting to broaden, the firm tells investors in a research note. JMP estimates that periods of uncertainty throughout the quarter weighed on capital markets activity and trading volumes throughout the first half of the period, but feels Q2 represents a step forward for risk appetites in the market, exiting the quarter with some momentum.

STRONG CAPITAL MARKETS: Earlier this month, Morgan Stanley raised the firm's price target on Bank of America to $33 from $32 but kept an Equal Weight rating on the shares. The firm expects the stock to outperform this quarter on relatively strong capital markets, the firm said in a Q2 large cap banks earnings preview note.

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