Oppenheimer cuts ratings on U.S. investment banks, favors alternative asset managers

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Oppenheimer cuts bank ratings

Highlights

Oppenheimer downgraded Goldman Sachs and Morgan Stanley to underperform and cut Citigroup and Bank of America to perform, citing late-cycle risks in large-cap investment banks.
The brokerage recommended reallocating from investment banks into commercial banks like US Bancorp and PNC Financial Services, identified as being in an earlier expansion phase.
Oppenheimer urged buying alternative asset managers such as Ares Management, Blackstone, and KKR, arguing investor concerns about private-credit exposures are now overdone.

Brokerage shifts strategy across financials

As reported by Reuters, Oppenheimer downgraded Goldman Sachs and Morgan Stanley to "underperform" from "perform" on Tuesday, while cutting Citigroup and Bank of America to "perform" from "outperform." The brokerage said it does not see an immediate catalyst that would derail the banks' growth or returns path, but believes the group has entered the later part of an expansionary cycle.

Oppenheimer told investors it would rather move out of large-cap investment banks before clearer warning signs emerge. Its analysts wrote that the cycle could continue for another 12 to 18 months or longer, but said they are more inclined to lock in gains now, particularly in investment banks.

Instead of maintaining that exposure, the firm recommends reallocating toward commercial banks including US Bancorp and PNC Financial Services, which it says are in a relatively early phase of expansion.

Market reaction and preferred alternatives

Premarket moves reflect the shift in sentiment. Morgan Stanley shares are down 1.36% before the bell, Goldman Sachs falls about 0.4%, and Citigroup and Bank of America each slip about 0.5% after the rating changes.

Oppenheimer is also urging investors to buy alternative asset managers, naming Ares Management, Blackstone and KKR among its preferred picks. That call comes even as the group has lagged this year because investors remain cautious about private-credit exposure and the risk of elevated redemptions from flagship funds.

The brokerage argues those concerns have become overdone and says investors should keep their financial-sector exposure by redeploying capital into alternatives rather than large-cap investment banks.

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