UPDATE: Wachovia Downgrades Goldman Sachs (GS) to Market Perform

UPDATE: This morning, Wachovia downgraded Goldman Sachs (NYSE: GS) from Outperform to Market Perform.

The firm said, "We upgraded GS on March 18 subsequent to BSC issues because we felt it would be a big beneficiary of the migration of prime brokerage balances. In addition, market share in investment banking would likely result. Both trends were evident in the better than expected Q2 result. However, in light of renewed economic fears, a likely slower pace of large capital raises, seasonally slower prime brokerage revenues, and a 1.9x valuation, we are downgrading shares to Market Perform. GS is the leader in the space, in our view, but is not immune to weaker markets and likely lackluster summer conditions."

Wachovia said there is no doubt GS is the top name in the space, but they see both banking and prime brokerage slowing as we enter slower months and "big ticket" capital raises slow and small ticket "regional like raises" increase.

Wachovia is leaving their Outperform ratings on Morgan Stanley (NYSE: MS) and Raymond James (NYSE: RJF).

Wachovia remains most cautious on Jefferies Group (NYSE: JEF) and Merrill Lynch (NYSE: MER).

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