Sector Spotlight: Analysts believe bank weakness presents potential opportunity

Welcome to the latest edition of “Sector Spotlight,” where The Fly looks at a new industry every week and highlights its happenings. 

FINANCIAL SECTOR NEWS: Compass (COMP) is in advanced talks to acquire the real-estate brokerage business of Berkshire Hathaway (BRK.A), The Wall Street Journal’s Nicole Friedman and Lauren Thomas reported. A deal for Warren Buffett’s HomeServices of America could come together soon, if talks don’t hit any last-minute snags, though the acquisition price couldn’t be determined, the report added. However, the head of Berkshire HomeServices denied the Wall Street Journal’s report, according to The Real Deal’s Jake Indursky. In an email to franchisees, HomeServices CEO and chairman Gino Blefari said, “I want to confirm to you that there are no discussions, negotiations, or agreements to sell HomeServices or any of its affiliated Companies, and that includes the Berkshire Hathaway HomeServices franchise business.” “Moreover, no such sale is being contemplated,” he added.

The CEOs of Blackstone (BX) and Goldman Sachs (GS) say there are upsides to President Donald Trump’s policies, even as he forges ahead with import tariffs that have fueled fears of a slowdown in the U.S., The Wall Street Journal’s Guy Chazan wrote. Blackstone CEO Steven Shwarzman told reporters in India on Wednesday that the tariffs would, “at the end of the day,” lead to a significant increase in manufacturing activity in the U.S., which “tends to be a good thing for the world.” Meanwhile, Goldman CEO David Solomon said that the business community “understands what the president is trying to do with tariffs,” though he is seeking more “certainty” on the Trump administration’s policy agenda.

JPMorgan’s (JPM) strategic Indices business has built a $100B derivatives-powered trading book, offering hedge fund-like investing at a lower cost to investors, Bloomberg’s Justina Lee reported. The business has seen a 15% annual growth in notional exposures over the last four years and is expanding its quant offerings across assets, including commodities and mortgage-backed securities.

Royal Bank of Canada (RY) has laid off some employees as a result of changes at its business segments following the acquisition of HSBC‘s (HSBC) domestic business last year for C$13.5B, Reuters’ Nivedita Balu wrote. Some of the layoffs were at the technology and operations teams and began earlier this week.

American Express (AXP) has entered into an agreement to acquire Center, a software company modernizing expense management. Center’s software, together with American Express’ corporate and small business cards, will aim to create a seamless expense management platform. The acquisition is expected to close within the second quarter of 2025, subject to customary closing conditions.

ANALYST COMMENTARY: Baird upgraded American Express to Neutral from Underperform with an unchanged price target of $265. The firm said the persistent selloff in the broader market makes it difficult to remain pessimistic on American Express’ “high-quality franchise.” The company should be able to deliver on lower revenue growth expectations in most operating environments, as a potential slowdown in consumer spend should support better loan growth while the currency environment has improved intra-quarter, the analyst told investors in a research note. Baird now finds the stock’s risk/reward as balanced.

The robust capital markets rebound Morgan Stanley expected in 2025 is not playing out as anticipated and the firm is lowering its estimates for investment banking revenues on the back of recent market conditions as volatility likely pushes out deal launches. However, large-cap bank and mid-cap advisor stocks “appear oversold against our new base case,” the analyst told investors. Morgan Stanley made the following price target changes:

• Lowered its price target on Goldman Sachs to $659 from $782 and kept an Overweight rating
• Decreased its price target on JPMorgan to $275 from $278 and reiterated an Equal Weight rating
• Cut its price target on Bank of America (BAC) to $56 from $57 and maintained an Equal Weight rating

RBC Capital upgraded Wells Fargo (WFC) to Outperform from Sector Perform with an unchanged price target of $80. The recent share price decline gives investors an opportunity to buy Wells Fargo, the analyst noted. The firm said that under the leadership of CEO Charlie Scharf, the bank has executed on its plan to satisfy all its regulatory issues while increasing profitability. RBC believes Wells is also well capitalized and is likely to see regulatory relief under the expectation of a less onerous regulatory environment.

BofA axed price targets among its banks coverage by 6% on average, driven by worsening growth and a rising cost of capital. While the firm noted the heightened risk of a recession, or “recession scare,” amplified by a continued selloff in equity markets creating a “negative wealth effect,” it added that the bank group is not discounting an outright recession, which is not the firm’s base case. If the so-called “adjustment” period for the U.S. economy leads to stronger growth, then the firm would be “biased towards adding exposure to best-in-class banking franchises,” BofA added. The firm made the following price target changes:

• Decreased its price target on Morgan Stanley (MS) to $150 from $160 and reaffirmed a Buy rating
• Cut its price target on Goldman Sachs to $700 from $750 and backed a Buy rating
• Diminished its price target on Wells Fargo to $85 from $90 and kept a Buy rating
• Lowered its price target on JPMorgan to $285 from $300 and reiterated a Buy rating

Baird upgraded JPMorgan to Neutral from Underperform with a price target of $220, up from $215. Additionally, Baird upgraded Bank of America to Outperform from Neutral with a price target of $50, up from $45. The risk/rewards in the U.S. banks group have improved after this week’s share weakness, the analyst told investors. The firm said the recent weakness in the bank group has resulted in an opportunity to get more constructive. While the group could remain volatile near term, upside potential “finally outweighs downside risk in several bank names as the election euphoria has faded and then some,” contended Baird. The firm believes JPMorgan is a “best-in-class franchise” that warrants a “premium” valuation. However, the shares are “too pricey for new money,” added the firm. Also, it views Bank of America as a “great franchise at a reasonable price.”