The past few days have seen an approximate 7% rise in General Motors’ Stock. Much of this gain is attributed to Wall Street investment banks initiating positive coverage on GM. A further review of the coverage reveals a wide divergence in opinion between big banks that are profiting from the GM IPO and analysts who did not.
Investment Banks that currently have a “Buy”, “Outperform” or “Overweight” rating on General Motors include, Citi, RBC Capital, JP Morgan, Morgan Stanley, Credit Suisse, Barclays, Bank of America, Deutsch Bank and Goldman Sachs. Every one of these firms has earned a minimum of $22.5 million from the GM IPO and stand to earn much more, particularly if GM’s share price rises. Price targets from these optimistic analysts range upward to $50 a share. It is interesting that Investment Banks who recommended offering taxpayer owned shares of GM at $33 less than two months ago now say they are worth $50.
Two firms that have not received millions of dollars from the General Motors IPO offer a very different opinion of GM stock. UBS has a “Neutral” rating citing cautious 4th quarter guidance, weak North American product launch, pension obligations, European woes, and slowing China growth as risk factors. UBS has a $37 price target for GM. Soleil Securities has a “Hold” rating on GM with a $38 price target. Soleil also listed weak product launch as a risk factor.
Jack Ablin, chief investment officer at Harris Bank, explains that it is common for analysts who work for an IPO’s underwriters to issue upbeat reports in spite of reforms adopted in 2003 that were meant to bolster analysts’ objectivity. “I would be astounded if they were anything but bullish”, said Ablin.
While those familiar with Wall Street’s lack of objectivity may discount the overly bullish tone of analysts working for GM IPO underwriters, less sophisticated individual investors place their faith in analysts’ reports as a reliable source of unbiased opinion and risk getting hurt if the optimistic outlooks do not play out. There does not seem to be a contrarian view offered on TV financial networks to balance the one-sided coverage. It is also ironic that the Obama Administration offered up much hyperbole against Wall Street “Fat Cats” and now seems to be quite a friend to these same “Fat Cats”.