Bank of America no longer recommends buying Goldman Sachs' stock due to concerns about its capital markets business in 2022. The Wall Street firm downgraded shares of Goldman Sachs to neutral from buy on Thursday. Bank of America also slashed its 12-month price target to $475 per share from $490 per share. Bank of America is cautious on Goldman as it expects a tougher revenue growth backdrop for its capital markets business due to a moderation in trading activity and M & A. "Our...view on the capital markets business (which contributes over 70% of revenues for Goldman) and bias toward owning more interest rate sensitive stocks (~11% of revenues derived from spread revenue), tempers our outlook on GS following the strong outperformance relative to peers and the S & P over the last twelve months," said Ebrahim Poonawala equity research analyst at Bank of America Securities. Shares of Goldman Sachs are up nearly 40% in the last 12 months, outperforming the S & P 500 and some of its bank peers. However, Bank of America said Goldman relies heavily on its capital markets business and after a banner 2021 for M & A and IPOs, the bank will face tough comps. Banks are off to a good start to 2022 as investors bet higher rates will boost the group's bottom line, but not all stocks in the sector are as leveraged to the rate cycle. Goldman "could face headwinds from a Fed rate hike cycle (could potentially weigh on investor appetite to add exposure to non-profitable startups) and a tougher regulatory backdrop when it comes to M & A as various Federal agencies create a framework to implement the Biden executive order that was signed last year," said Poonawala. Bank of America recommends owning Morgan Stanley over Goldman Sachs. The firm said Morgan Stanley has a more diversified revenue mix. Goldman reports fourth-quarter earnings on January 18. — with reporting from CNBC's Michael Bloom.
A Goldman Sachs Group Inc. logo hangs on the floor of the New York Stock Exchange in New York, U.S., on Wednesday, May 19, 2010.
Daniel Acker | Bloomberg | Getty Images
Bank of America no longer recommends buying Goldman Sachs' stock due to concerns about its capital markets business in 2022.