UPDATE 1-Deutsche starts Goldman, Morgan Stanley with buy
Oct 8 (Reuters) - Deutsche Bank began coverage of Goldman Sachs Group Inc (GS.N: Cotización) and Morgan Stanley (MS.N: Cotización) with "buy," and said the two U.S. banks will stay well capitalized even under the likely increased regulatory capital requirements.
The outlook for capital markets activity is favorable for the industry given improving economic growth, rising confidence and better pricing, but this is even more positive for the two banks because of their relative positioning and recent market share gains, analyst Michael Carrier said.
In the near term, Goldman will likely generate superior earnings growth and a healthy return on equity partly due to its superior risk management and improving capital market trends, the analyst wrote in a note to clients.
For Morgan Stanley too, Carrier expects to see an improving book value growth and return on equity, with strategic initiatives and capital deployment creating significant long-term potential.
Over the longer term, the two are likely to deploy excess capital to pursue buybacks in order to generate superior returns for shareholders, he said.
"While Goldman is not immune to regulation and we expect required capital levels to increase, the firm's risk management culture is in a league of its own and Goldman remains well positioned relative to the industry," Carrier said.
The Group of 20 leading industrial nations agreed in September to finalise new capital rules by the end of 2010 and set an end-2012 date for implementing the tougher capital rules for banks. [ID:nLP433144]
Carrier set a price target of $220 on the shares of Goldman and $36 on those of Morgan Stanley.
Shares of Goldman closed at $190.48 Wednesday on the New York Stock Exchange, while Morgan Stanley shares closed at $31.16. (Reporting by Tenzin Pema in Bangalore; Editing by Himani Sarkar)
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