2018 will be a big year for Goldman Sachs. The firm is chasing $5bn in extra revenues. J.P. Morgan's banking analysts are not entirely convinced, but they suggest you might want to work for Goldman anyway.
In a new report on the state of global investment banks, J.P. Morgan's banking analysts list their current preferences in order of partiality. Goldman Sachs is top. Deutsche Bank is 8th.
Needless to say, these are the preferences of banking analysts. They're not rating banks for work life balance or bonus payments: they're rating them on the basis of the upside in their stock and the viability of their strategy. However, both things have implications for employees, particularly now that large portions of senior bankers' bonuses are paid in stock.
J.P. Morgan's preference for Goldman Sachs reflects the firm's emphasis on shareholder returns. While revenues floundered, Goldman increased its return on equity from 8.7% in the first nine months of 2016 to 10.3% in the first nine months of this year. The implication is that the underlying business is healthy. Even better, JPM says Goldman could thrive in 2018 as volatility picks up, the commodities business turns around and its "best-in-class" cost management continues. The only downside is that JPM's analysts don't believe the $5bn story: they think that only $1bn of the new GS revenues will come through.
Even so, Goldman clearly looks like a better bet than Deutsche Bank, which J.P. Morgan says has yet to persuade everyone that it can increase revenues whilst cutting costs, which has a return on equity below its cost of capital, and which is still too geared towards fixed income trading. Similarly, Goldman looks like a better bet than BNP Paribas, whose revenue projections for the corporate and investment bank (CIB) are deemed, "very ambitious," or Barclays, which JPM says has a good plan but risks being hindered by the political repercussions of Brexit.
J.P. Morgan's analysts rank Morgan Stanley and the Swiss duo of Credit Suisse and UBS behind Goldman. However, while these three banks might be popular from a shareholder and group strategy perspective, J.P.'s analysts rated them mostly on the basis of their wealth management and private banking businesses rather than their investment banking prowess. If you're an investment banker or trader the implication is that it's GS or bust - unless of course you work for J.P. Morgan itself.
Separately, before things get better (in 2018), J.P. Morgan's banking analysts think things will get worse in 2017. Their forecasts for investment banks' revenues in the fourth quarter, for 2017 as a whole, and for next year are shown in the chart below.
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