Oppenheimer shifted its stance on a number of large U.S. banks on Tuesday, lowering ratings on several names while flagging alternative asset managers as more attractive allocators of investor capital.
The brokerage moved Goldman Sachs and Morgan Stanley from Perform to Underperform, and cut Bank of America and Citigroup from Outperform to Perform. It left its Outperform ratings in place for PNC Financial Services and U.S. Bancorp. Alongside those rating changes, Oppenheimer recommended that investors consider rotating into alternative asset managers such as ARES Management, Blackstone and KKR.
Oppenheimer said the banking landscape has evolved from a period of structural undervaluation to one in which current market prices already embed considerable optimism about sustained earnings growth. On valuation metrics, the firm noted that commercial banks are trading near the upper bound of their historical ranges, while investment banks are trading well above long-term averages as the market prices in robust investment banking and trading revenue.
The firm increased its second-quarter 2026 earnings estimates across the sector, pointing to stronger-than-expected trading performance. It also lifted its 2027 forecasts after raising assumptions for global investment banking activity. Oppenheimer now expects the investment banking "wallet" to reach approximately 46 basis points of U.S. nominal GDP, which it characterizes as roughly 20% to 25% above what it considers a normal level.
Goldman Sachs and Morgan Stanley saw the largest upward revisions to their 2027 earnings estimates, reflecting those firms' greater exposure to trading and investment banking. Even with those upward edits, Oppenheimer said the elevated multiples for those investment banks no longer present a compelling value case. The firm also expects universal banks to benefit from the stronger investment banking backdrop, but judged that the market has already priced in much of that potential upside.
Oppenheimer cautioned that while it does not see a clear catalyst that would derail banks' earnings over the coming quarters, the industry remains mature and cyclical. The brokerage emphasized that expansion phases eventually give way to downturns. It singled out trading businesses as a potential source of greater long-term risk relative to traditional lending, but did not forecast when any future period of market stress might arise.
For the second quarter, the firm anticipates trading to be the primary engine of earnings upside across the banking sector, and it expects stronger investment banking activity to drive another year of double-digit earnings growth in 2027.
Market implication - Oppenheimer's repositioning signals a preference for firms with asset management franchises as a way to capture fee-based growth rather than owning bank equities whose valuations are trading at stretched levels.