Goldman Sachs Group Inc (GS), JPMorgan Chase & Co. (JPM): One Bank to Buy, One to Hold

JPMorgan Chase & Co. (NYSE:JPM)’s second-quarter earnings were driven by better results in its investment banking division and better credit quality, partially offset by higher expenses. Core corporate and investment banking revenue of $10.1 billion came in higher than expected, primarily driven by higher trading revenue and improving credit. Core fixed income and equities trading revenue of $5.4 billion also surged 18% over the prior year.

Despite a solid second quarter, I believe the future for JPMorgan Chase & Co. (NYSE:JPM)is not bright. The bank’s management has already acknowledged that the situation is becoming difficult day by day as the bond markets continue to suffer from rising rates. In such a scenario, expense control is the best way out for JPMorgan Chase & Co. (NYSE:JPM).

The bank’s CFO said that its investors should expect a cut within the range of 30% to 40% in the bank’s mortgage-lending volumes during the coming quarter due to the consistently higher interest rates. Also, the bank is expecting sluggish loan demand due to sluggish US economic growth.

Best bank

Morgan Stanley (NYSE:MS) also reported better-than-expected results. The second-quarter results were driven by better investment banking and global wealth management results. Going forward, Morgan Stanley is believed to benefit from a balanced and diversified business model. The bank is supported by a strong capital base, while the management has worked hard to bolster liquidity, cut exposure to high risk assets and de-leverage the balance sheet. The bank has the potential to realize significant gains through these efforts. So, I am bullish on its future.

While Morgan Stanley (NYSE:MS) needs to focus on its expenses, both compensation and non-compensation expenses, its business mix evolution and franchise restoration can drive the bank’s stock price up in the future. These positive stock price drivers could offset the expected slowdown in the bank’s fixed-income sales and trading activities.


While the aforementioned banks reported better-than-expected earnings for the second quarter, the future is not bright for all three of them. I believe only Morgan Stanley offers the brightest future with the absence of new negatives and the presence of positive stock price drivers. Goldman Sachs offers little positive stock price drivers with the third quarter expectations that are tempered. That’s why I am bullish on Morgan Stanley (NYSE:MS) and recommend investors hold Goldman Sachs.

Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM).. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article One Bank to Buy, One to Hold originally appeared on is written by Adnan Khan.

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