Barclays Cuts Estimates for Bank of America Corp (BAC) and Goldman Sachs Group Inc (GS)

Analyst Jason Goldberg, senior analyst at Barclays, was out with some cautious stance on financial giants Bank of America Corp (NYSE:BAC) and Goldman Sachs Group Inc (NYSE:GS). The analyst lowered his estimates for both companies, as the sector as a whole has been under intense pressure this year.

According to, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jason Goldberg has a yearly average return of 2.2% and a 57% success rate. Goldberg is ranked #1158 out of 3784 analysts.

Bank of America Corp

Yesterday, Goldberg reiterated an Equal Weight rating on shares of Bank of America, with a price target of $19, while lowering his 1Q16 EPS estimate by $0.10 to $0.20 on the back of “greater drag on NII from FAS 91 ($0.8bn+), weaker than previously expected capital markets results and incrementally higher credit costs related to the potential energy reserve build.”

Goldberg noted, “In 1Q16 we expect BAC to record a $175mn legal accrual ($0.01), $225mn securities gains and a roughly $800mn FAS 91 drag on NII ($0.05). This compares to 4Q15 specials that included $0.6bn hit to NII for TruPS redemption and a $0.1bn FAS 91 benefit. Gains on sales of debt securities were $270mn ($0.02) and litigation expense was $0.4bn ($0.02). In addition, 4Q15 results included a $0.2bn DVA drag and a $0.3bn (after-tax) negative impact of U.K. tax law changes.”

“Key factors to watch: 1) markets revenues: expected weakness in trading and IB revenues set up for uncertain full-year results; 2) net interest income: FAS 91 adds excess noise and volatility to NII; 3) expenses: new levers may be needed if rates stay lower for longer; 4) credit costs: energy related deterioration may offset consumer improvement near-term; and 5) capital deployment: while $800mn buyback increase in 1Q16 a net positive, 2016 CCAR now in focus,” the analyst added.

Out of the 11 analysts polled by TipRanks, 7 rate Bank of America stock a Buy, 3 rate the stock a Hold and 1 recommends to Sell the stock. With a return potential of 43%, the stock’s consensus target price stands at $18.69.

Goldman Sachs Group Inc

Similarly, Goldberg reiterated an Equal Weight rating on shares of Goldman Sachs, with a price target of $210, while lowering his 1Q16 EPS estimate by $1.32 to $2.73, below current consensus of $3.16.

Goldberg explained, “These reductions reflect our expectations for a tough investment banking, trading, and Investing & Lending (I&L) environment to start the year. During the quarter, the trading environment was challenging, while relatively higher margin underwriting opportunities in IPOs and high yield essentially disappeared. In addition, we believe monetization opportunities for I&L were crippled. As a result, we look for operating revenues to be down more than 30% on a y-o-y basis. Still, we expect GS’s comp ratio to remain relatively stable with 1Q15 at 42%, resulting in a similar percentage decline in comp expenses. Continued share repurchase should also help. We also are interested in its IB pipeline health and whether it expects to make up lost ground during the remainder of 2016, aided by potential market share taking opportunities.”

Out of the 18 analysts polled by TipRanks, 9 rate Goldman Sachs Group Inc. stock a Buy, while 9 rate the stock a Hold. With a return potential of 33.9%, the stock’s consensus target price stands at $203.31.

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