In Wolfe Research's 2023 outlook for banks, analyst Steven Chubak turned more cautious on large cap banks with risks to consensus on net interest income, capital markets, and credit. As a result, he downgraded Goldman Sachs ( NYSE: GS ) and Morgan Stanley ( NYSE: MS ), while upgrading Bank of New York Mellon ( NYSE: BK ), a custodial bank.
Another mark against global systemically important banks is the risk of higher capital requirements from Basel 4. Morgan Stanley ( MS ) is cut to Underperform from Outperform and Goldman ( GS ) to Peer Perform from Outperform. Both banks had been among Wolfe's favorite stocks in the past few years, "but we see a number of risks emerging given elevated market sensitivity, capital markets headwinds, and higher capital under B4," Chubak wrote.
By contrast, BNY Mellon ( BK ), upgraded to Outperform from Peer Perform, "appears poised to have a strong '23 given idiosyncratic tailwinds, self-help levers (efficiency, buyback) and limited credit exposure," he said.
Chubak's top picks are BNY Mellon ( BK ) and LPL Financial Holdings ( LPLA ), as both have less exposure to credit and capital weaknesses.
Among GS, MS, BK, and LPLA , SA's Quant system rates LPLA a Strong Buy, while the other three stocks get Hold ratings. Meanwhile, the average Wall Street rating for all four stand at Buy. The average SA Author rating is Buy for LPLA, MS, and BK with a Hold on GS.
SA contributor Collin Sclesky digs into BNY Mellon ( BK ), the world's largest custodian bank, as a value opportunity .
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Goldman, Morgan Stanley cut at Wolfe, Bank of New York Mellon upgraded