Morgan Stanley takes a positive stance on large U.S. banks, predicting that the upcoming regulatory adjustments to their capital needs will be less onerous than initially proposed. This expected generosity appears to have been planned in analysts' stock market commentary, which was written to open up the possibility of stock buying as large banks have the highest excess capital in their history.
This upgrade from Morgan Stanley's analysts is based on three main reasons. The risks posed by the “Basel Endgame” international banking regulations are becoming clearer. In particular, the level of excess capital currently held by large banks is at an all-time high, and the possibility of additional purchases is emerging as large banks are experiencing relatively slow loan growth. And confidence in the recovery within the capital markets sector is growing.
At the individual bank stock level, Bank of America (NYSE: BAC) was upgraded to Overweight and Citigroup (NYSE: C) was upgraded two notches from Underweight.
Analysts claimed Citigroup was the “biggest beneficiary from additional purchases.” “A purchase of approximately half to default value is a very profitable financial transaction.” Additionally, Goldman Sachs Group Inc. (NYSE: GS) stock was upgraded to Overweight, and Bank of New York Mellon (NYSE: BK) was upgraded to Equal Weight. On the other hand, Northern Trust (NASDAQ: NTRS) was downgraded to Underweight due to valuation issues.