Goldman, MS Downgrades Put a Damper on Financial Sector

Goldman Sachs (GS) and Morgan Stanley (MS) are trading lower today after a downgrade by analysts at JP Morgan Cazenove in London.

JP Morgan analyst Kran Abouhossein writes that new regulations — in particular the Volcker rule — could force investment banks in the U.S. to reduce their risk profile.

“US investment banks operate with ongoing un-coordinated regulatory headwinds, reducing the competitiveness against European IB peers due to regulatory arbitrage based on the sum of regulatory proposals,” Abouhossein wrote.

He downgraded the banks to Neutral from Overweight. With the market and many other financials rising on the Fed’s decision to hold interest rates low for an extended period, Goldman is down 0.4% and Morgan Stanley is up about 0.2%.