Morgan Stanley Upgrades Major Banks Amid Eased Basel III Rules

Morgan Stanley's analyst Betsy Graseck has given a bullish upgrade to several major banks including Bank of America, Goldman Sachs, Citigroup, and Bank of New York Mellon, citing more relaxed Basel III capital requirements under consideration by the U.S. Federal Reserve. Banks might now have the opportunity to enhance shareholder value through increased buybacks.

Brighter Horizon for Bank Stocks

In a positive turn for major financial institutions, Morgan Stanley has raised its outlook and price targets for a group of large banks in anticipation of reduced capital constraints. Price targets for 12 big banks have seen a median uptick of 16%, reflecting a more attractive valuation outlook for the sector.

Should the Federal Reserve finalize a revised set of rules that align more closely with international standards, and lessen the originally proposed risk-weighted asset inflation from Basel III endgame suggestions, these banks could see a reduction in capital holding requirements.

Upward Adjustments and Ratings Changes

Bank of America and Goldman Sachs have been promoted to an 'overweight' rating from 'equal-weight', with price target increases reflecting the improved forecasts. Similarly, Citigroup's uplift to 'overweight' from the previously held 'underweight' rating, along with a price target hike, positions it as a potential top beneficiary of incremental buybacks.

Bank of New York Mellon has also received an upgrade to 'equal-weight' from 'underweight', with a revised price target to match. While remaining overweight, JPMorgan Chase and Wells Fargo have seen their price targets improve as well.

Regions Financial has maintained its favorable 'overweight' stance with a higher price target, unlike Northern Trust which faced a downgrade to 'underweight', albeit with a slightly increased price target.

Market Anticipations and Forward-Looking Optimism

The backdrop for these upgrades is a mix of industry anticipation about rule easing and a recent rebound in capital markets, including recovering IPO and M&A activities. Bank stocks are also finding momentum after a tough period marked by bank failures and rising interest rates that dampened loan demand.

While the financial sector is seeing a surge, with the Financial Select SPDR Fund showing growth, it seems to be moving in tandem with modest gains in the broader S&P 500 index.

MorganStanley, Banking, Capital