Feb 4 (Reuters) - Punk Ziegel analyst Richard Bove upgraded four top U.S. investment banks as a reflection of positive trends in the past three weeks, which include meaningful lower interest rates, a return of lenders to the commercial paper markets and a surge in mortgage refinancing activities.
Bove raised Lehman Brothers Holdings Inc LEH.N to “buy,” and Goldman Sachs Group Inc (GS.N), Merrill Lynch & Co Inc MER.N and Bear Stearns Cos Inc BSC.N to “market perform”.
Bove previously had “sell” ratings on the four investment banks, but cited the recent developments for his change, as well as stronger equity markets and potentially stronger merger and acquisition activity as other factors for the turnaround stance.
“In sum, the financial sector is changing. The changes will be gradual, except in mortgages, but the changes are all likely to be positive,” Bove wrote in a note titled “The World Has Changed.”
He said private equity may once again be able to fund activities in the high yield markets, while adding that credit derivatives markets were unlikely to go lower, and that the mortgage business may actually be quite strong this year.
New York-based Lehman will likely recover faster than its peers due to the expected strength in mortgages, Bove said.
The analyst, however, maintained his “sell” recommendation on Morgan Stanley (MS.N).
“The unwillingness to raise the rating on Morgan Stanley is due to a fear that this company’s lack of understanding of risk, at a time when its appetite for risk keeps growing, may prove to be chastening,” Bove said. (Reporting by Tenzin Pema in Bangalore; Editing by Bernard Orr)