Morgan Stanley Bullish On Many Banks, But Downgrades Bank Of America, JPMorgan, Goldman Sachs

Morgan Stanley is overall bullish on bank stocks in 2021, but downgraded three of the largest Monday.

The Analyst: Morgan Stanley analyst Betsy Graseck issued the following ratings changes among large-cap banks and consumer finance stocks:

• Synchrony Financial SYF upgraded from Equal Weight to Overweight, price target raised from $27 to $51.
• Capital One Financial Corp. COF upgraded from Equal Weight to Overweight, price target raised from $77 to $131.
• Regions Financial Corp RF upgraded from Equal Weight to Overweight, price target raised from $14 to $22.
• Wells Fargo & Co WFC upgraded from Equal Weight to Overweight, price target raised from $23 to $40.
• State Street Corp STT upgraded from Underweight to Overweight, price target raised from $69 to $99.
• U.S. Bancorp USB upgraded from Underweight to Equal Weight, price target raised from $43 to $57.
• Bank of New York Mellon Corp BK upgraded from Underweight to Equal Weight, price target raised from $40 to $51.
• Discover Financial Services DFS downgraded from Overweight to Equal Weight, price target raised from $68 to $107.
• SEI Investments Company SEIC downgraded from Overweight to Equal Weight, price target raised from $63 to $72.
• Bank of America Corp BAC downgraded from Overweight to Underweight, price target raised from $24 to $34.
• JPMorgan Chase & Co. JPM downgraded from Overweight to Underweight, price target raised from $106 to $142.
• Goldman Sachs Group Inc GS downgraded from Equal Weight to Underweight, price target raised from $208 to $273.

Related Link: How Bank Of America Has Become One Of Warren Buffett's Best Investments

The Bank Takeaways: In the updated ratings note, Graseck said she sees four major tailwinds for banks in 2021, driven by optimism surrounding at least one highly effective coronavirus vaccine becoming widely available in the near future.

“It provides a high degree of certainty that this recession will end in 2021, driving up long end interest rates, accelerating loan growth, driving down unemployment and allowing banks to resume buybacks,” the analyst said. 

Most large banks are already prepared for unemployment rates in the 6% to 9% range by the fourth quarter of 2021, she said.

Therefore, Graseck said an economic rebound should free up significant capital starting in the second half of next year.

Graseck downgraded three of the largest U.S. bank stocks: Bank of America, JPMorgan and Goldman Sachs. All three have rallied significantly off their 2020 lows.

Yet the silver lining for big bank investors is that Grasek raised her price targets for all three stocks significantly heading into 2021.

Benzinga’s Take: It seems like Grasek is anticipating a bullish environment for bank stocks in 2021.

Even the stocks she downgraded to Underperform each have at least 16% upside ahead in order to hit her updated price targets.