Investment banking is a major industry generating over $42 billion in investment fees in the United States alone each year.
The leading investment bank is JPMorgan Chase & Co (NYSE:JPM), which is also known as a consumer banking brand. It’s the largest bank in the world with assets totaling almost $3 trillion, along with another $70 trillion under its investment, corporate, and hedge fund branches.
Goldman Sachs Group Inc (NYSE:GS) is also a giant and arguably has the premier brand. Both companies were deemed “too big to fail,” during the 2007 financial crisis and offer a wide array of financial services beyond just investment banking.
This guide will explore Goldman Sachs vs JPMorgan stock to determine which is the better investment, depending on your risk aversion and portfolio goals.
Goldman Sachs Posted Record Profits
While the rest of the world struggled in the second quarter of 2020, Goldman Sachs posted its best performance in almost a decade, generating $2.42 billion in profits.
He has good reason to be happy – GS stock recovered well in the aftermath of the 2007 financial crisis, and it repeated its financial recovery following the coronavirus lockdowns.
Goldman Sachs was known as a specialist in mergers and acquisitions, and its financial advisors help guide the rest of the market.
It’s the bank that helps run Initial Public Offerings (IPOs) for other businesses too, with China-based, Alibaba-backed Ant Group being its most recent listing.
The company ranked 60 on the Forbes 500 as of September 2020, rising two spots from May, showing just how well it’s performing against the general market. GS has nearly 40,000 employees, and many of its former workers have taken esteemed positions, like Secretary of the Treasury Steven Mnuchin.
Of course, Berkshire Hathaway made headlines in May 2020 when it sold most of its Goldman Sachs holdings (although it still holds well over one million shares).
The company has since recovered and is expanding its investment portfolio beyond institutional financial services into the consumer market.
Analysts are split between a hold or buy. Rumors are also swirling it could also buy a consumer bank to help it compete better with JPMorgan, which we’ll discuss next.
JPMorgan Set Aside $10Bn To Cover Loan Losses
JPMorgan Chase is a component of all the major indices, including the Dow Jones Industrial Average, S&P 500, and S&P 100.
Its exposure in corporate banking made things difficult as major companies shuttered amid the coronavirus pandemic. This knocked over a quarter of the price, providing a possible value for those looking to buy.
And most analysts still believe it’s a Buy at such a discounted rate that it could gain 10 to 20 percent value or more in the next few years.
A large portion of JPMorgan’s workforce had been working from home during the COVID-19 outbreak, and this is slowly changing as the end of year approaches. In fact, it’s doubling its in-office investment banker workforce in both New York and London.
This is an important step in controlling bandwidth and ensuring fast and secure trades are executed in an industry where every second could make millions of dollars of a difference.
The company also has a market research branch that’s heavily focused on the pandemic’s impact across markets.
The bank did recover from the 2007 financial crisis, outpacing the S&P index by nearly 2x. If the bank can mimic this recovery effort amid the turbulent economic conditions moving into 2021, investors stand to make respectable gains.
But this assumes the economy recovers with no further issues, though, and that may be asking a bit much.
Goldman Sachs Has Highest Capital Requirements
Because of its size, Goldman Sachs has the highest capital requirement of all the banks with stress tests performed in 2020, according to American Banker.
These stress tests are performed by the Federal Reserve to ensure the company retains enough capital to pay off any hypothetical losses.
This means if the economy doesn’t recover once the stimulus provisions wear off, people may start cashing in their investments and pulling money out, which could hurt the firm.
The company also faces PR dangers, as Solomon’s foray into the music industry has been met with mixed reviews veering deep into stigmatizing.
The company’s biggest risk is a failure of the market itself, although there’s also its expansion. As Goldman increases its retail banking offerings, it faces piles of regulatory scrutiny. This is especially true of its commodities business, which many believe is high risk.
Dangers of Buying JPMorgan Chase
JPMorgan also has close ties to the financial markets, which gives it much the same risks as Goldman. Federal Reserve rates hit an all-time low of zero percent, and that’s expected to remain stable through 2022.
This makes it difficult for the bank to squeeze out a profit, as they depend on interest rates to earn money on mortgages, certificates of deposit (CDs), and other financial products. Consumer trends are also changing post-coronavirus.
The bank needs to ensure its employees are empathetic over the next few years. Financial times are tough, and the brand risks being negatively associated with peoples’ financial problems, sparking a sequel to the Occupy protests of 2011.
Goldman Sachs Vs JPMorgan Stock: The Bottom Line
Both Goldman Sachs and JPMorgan took a hard hit alongside the market during the 2020 coronavirus pandemic. This dropped both stocks into an affordable price range that’s luring investors with mostly Buy ratings on both stocks.
They’re not out of the woods yet, though. Economic recovery will take well into 2021, if not longer, and we won’t know the real effects on the economy until the government stimulus programs run out at the end of 2020.
If you believe in a recovering market, either of these investment banks could be a good buy. Just be sure to perform your due diligence before paying.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.